HOW TO PROTECT YOURSELF FROM OCCUPATIONAL FRAUD

Employee fraud is a rising problematic issue faced by organizations in Ellicott City, Maryland, and the United States. No matter the size, type, location, and industry of the organization, the risk of falling for fraud is always open. While loyalty to your employer is a basic ethical value expected from employees to meet, there are still many reasons for employers not to put blind trust in the employees, as they might commit fraud in many different ways, and you might not get the idea immediately.

Before we move forward to prevention steps, let’s first know the basics of Occupational Fraud to prepare you beforehand for any issue.

What is Occupational Fraud?

Occupational fraud can be defined as the fraud committed by an organization’s employees. This kind of fraud can be put into three categories: asset misappropriation, corruption, and financial statement fraud. According to the Association of Certified Fraud Examiners (ACFE) 2018 Report to the Nations, the U.S. median loss from occupational fraud and abuse is around $108,000.

The Fraud Triangle

What is the root cause of any employee committing fraud?

Pressure is the most critical element of life. The need to be financially stable or some non-shareable personal issues such as back on bills, gambling debts, or fake expensive lifestyles can provoke an employee to commit fraud. Pressure can also come from the employer itself, putting employees under a lot of force to perform better or cover up negative results to look good.

Opportunity is another factor behind fraud and is usually more obvious than pressure. For any organization to function properly, a certain level of trust and loyalty is placed on the employees. The factor arises when an entrusted employee violates that trust by taking advantage of their position to commit fraud.

Rationalization, the third factor, is typically just an excuse made by a person to commit fraud. And in many cases, perpetrators satisfy their wrongdoing by telling themselves that they aren’t really stealing and just temporarily borrowing from the employer. In other cases, perpetrators might rationalize their actions with thoughts like, “they won’t miss the money,” or “the organization deserves what it is getting.”

Types of Occupational Fraud

Occupational fraud falls into three general categories: Misappropriation of assets, Corruption, and Financial statement fraud.

Assets Misappropriation: This asset misappropriation fraud is the most common, occurring in 89% of the cases. However, reports suggest that they are also the least costly, causing a median loss of $114,000.
Corruption: In corruption cases, you’re often dealing with senior management, and someone in a position of authority perpetrated 70% of corruption cases. This type of fraud, which involves an employee who misuses the influence in a business transaction to gain the direct or indirect benefit, bribery, or conflicts of interest, is the next most common form of occupational fraud. It results in a median loss to the victim organizations of $250,000.
Financial Statement Fraud: Fraud is the least common but most costly form of occupational fraud, which occurred in 10% percent of the cases and caused a median loss of $800,000.

How to Prevent Occupational Fraud

Once you as an employer understand the types of occupational frauds and how they can drive your whole organization’s position, you will surely keep an eagle eye on the red flags associated with the employees.

We are not saying that every employee out there is involved in inappropriate frauds, but trusting employees blindly as the face of the organization will be foolish. We hope this article has helped you get the idea of occupational Fraud and prevent them. For more queries, feel free to reach out to us.