<iframe src="https://www.googletagmanager.com/ns.html?id=GTM-NL78X4T" height="0" width="0" style="display:none;visibility:hidden">

Occupational fraud and abuse is a threat to your business

It causes serious financial harm especially to smaller businesses

We've seen the security breaches at Sony, Target, and Home Depot drive home the risk of criminals working on the outside. According to the ACFEs Vice President and Program Director Bruce Dorris, more data breaches, like what we've seen at these retailers, will more than likely continue to occur in 2015. He says “these breaches have exposed widespread vulnerabilities among organizations that store and maintain personal information, putting millions of individuals at risk. Considering that storage of data continues to grow at an exponential pace, more trouble lay ahead – and there is an increasing need for information security and protecting against data breaches.”

But threat from the outside is just one side of the problem. What about the threat from the inside? This is occupational fraud and abuse and it happens when employees steal, engage in fraud and embezzlement, or any other misconduct that can lose a company money.

In a recent blog post this week, we wrote about how it's the leaders and management of a company who create the internal culture. And this doesn't matter the size of the company either. With occupational fraud, it's either happening because 1) management is letting it happen because they are encouraging the bad behaviour in order to meet a goal or deadline, or 2) it's happening right under their nose and they have no idea!

Smaller businesses suffer more from dishonest employee conduct. In 2014 the ACFE reviewed 1400 fraud cases from more than 100 countries. 58% of the defrauded companies had not recovered any of their losses, and 14% had fully recovered their losses.

And we've heard it before, but repetition is always key - the median amount of time that an 'employee committed' fraud remained undetected was 18 months, and if the median loss was $145,000, this could be devastating to a small business.

Here's a quick list of the steps that small business can take to prevent employee fraud:

  1. Do employee background checks
  2. Implement a written code of ethics
  3. Divide bookkeeping and check signing authority
  4. Deliver bank statements unopened
  5. Implement an ethics reporting program

Now having said that, background checks are important, however in the ACFE study only 5% of perpetrators were repeat offenders. That means that the rest of offenders were first timers - obviously background checks can't catch that, but it is a start. Another important thing to note is that of the repeat offenders, they are more than likely employees who have been with the company for years and have gained trust and have the access to the knowledge to commit the fraud.

The first step toward preventing occupational fraud is acknowledging it’s a possibility. Yeah, it can happen to you! Then, like most risks, managers should address occupational fraud through strong management controls. This includes an ethics reporting system - download the eBook!


6 Steps to Implement an Ethics Hotline
photo Amanda Nieweler
About the Author
Amanda writes for WhistleBlower Security about ethics, compliance, workplace culture, and whistleblower hotlines. Amanda brings her nearly two decades of risk and compliance experience to the WBS blog where she is dedicated to helping people and companies promote speak-up cultures.