The Threat of Occupational Fraud is Universal

By: Mark Gardiner, CPA, CFE, Partner|  email

Occupational fraud is a scheme in which an employee abuses the trust placed in him or her by an employer for personal gain. Its formal definition is: The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.

Asset misappropriation schemes were the most common type of occupational fraud, comprising 87% of the cases reported to the Association of Certified Fraud Examiners in their 2012 Report to the Nations on Occupational Fraud and Abuse. Financial statement fraud schemes made up 8% of these cases but caused the greatest amount of losses. Corruption schemes occurred in approximately one-third of the cases.  

Nearly half of the organizations reporting to the Association of Certified Fraud Examiners did not recover any losses that they suffered due to the fraud. The very nature of fraud involves efforts at concealment, with many of the frauds never being detected, and of those that are, the full amount of losses might never be determined or reported. 

External audits should not be relied upon as an organization’s primary fraud detection method. Such audits were most commonly implemented control in their study; however they detected approximately 3% of the frauds reported and ranked poorly in limiting fraud losses. Providing individuals a means to report suspicious activity is a crucial part of an anti-fraud program. Fraud reporting tools for an organization, such as hotlines, should be set up to receive tips from both internal and external sources and should allow anonymity and confidentiality. Occupational fraud is more likely to be detected by a tip than by any other method. The majority of tips reporting fraud come from employees within the victim organization.

Talk to your audit team to discuss ways to implement anti-fraud measures.  

Reprinted with permission – The Association of Certified Fraud Examiners