According to the Association of Certified Fraud Examiners (ACFE), a single case of occupational fraud costs the victim organisation an average of more than US$1.5 million.
In fact, the Australian Federal Police reported that staff and former staff are responsible for 70 per cent of business fraud nationally.
It’s Fraud Awareness Week! Ensure your staff are trained on how to recognise fraudulent behaviour in the workplace. http://t.co/BYUROs4GDg
— TheSafetracGroup (@SafetracGRC) May 18
What is employee fraud?
Employee fraud is a deliberate act that involves using deception to gain advantage from a position of trust or authority. It can affect any organisation, regardless of size or type of business, and poses a major risk not only to the financial bottom-line but also to reputation.
What types of employee fraud should you keep an eye on?
1. Financial statement fraud
This type of employee fraud involves deliberately changing company financials in order to mislead users. These alterations always create an illusion of success. More often than not, financial statement fraud is committed by management to hit certain targets or achieve specific objectives. Here are a couple of examples:
- Example one: A company leader alters the financial statement to make the organisation’s stocks appear more attractive. As a result, investors become interested and their stock price rises.
- Example two: A manager needs a bank loan. To obtain approval they misstate their financials so it appears as though they can quickly pay off the loan.
According to ACFE, of the three major categories of employee fraud, financial statement fraud causes by far the greatest median loss per scheme – US$975,000.
Defined as fraud involving third parties or employees stealing from an organisation through fraudulent activity, asset misappropriation can take a lot of different forms, including:
- Deception by employees.
- False expense claims.
- Embezzlement by altering accounts or creating inaccurate invoices.
- Payroll fraud by diverting payments.
- Data theft and intellectual property theft.
Asset misappropriation is a large umbrella term for a lot of different types of employee fraud and can be committed by company directors or anyone else entrusted to hold and manage the assets and interests of an organisation or its employees. However, asset misappropriation does exclude straight theft from an organisation by insiders. For example: stealing stationery or other physical assets.
3. Corporate credit card fraud
Corporate credit card fraud occurs when an employee uses the company card for personal gain or purchases instead of legitimate business purposes. Conducting regular checks of your credit card statements will help you pinpoint red flags.
For example, are there suspect merchant codes on your bills? Purchases at crafts stores wouldn’t make sense for a corporate travel card. Fraud tests help detect these occurrences and even alert you when company cards are being used on weekends or when employees are on annual leave.
How can you prevent employee fraud?
When it comes to employee fraud, these three prototypes are only the tip of the iceberg. Dishonest staff members are becoming more sophisticated in the ways they steal from companies every day with the help of advanced technologies. So how can you protect your organisation from this fraudulent behaviour?
When employees are trained to recognise the signs of fraud, they are better equipped to report it.
One of the biggest deterrents to employee fraud is training. When employees are trained to recognise the signs of fraud, they are better equipped to report it, giving you the information you need to stop it. According to ACFE, 50 per cent of employee fraud is detected due to a tip from a staff member.
This is why it’s so important to ensure everyone within your organisation is aware of fraud risks, types of fraud and the consequences associated with them. For those considering committing fraud, this will be a warning sign that management is paying attention. For honest employees, this will be an important lesson on how to spot when something’s not quite right. In these cases, employees can be your biggest assets in the fight against fraud.
Looking for a flexible compliance training solution?
Safetrac’s course on ‘Fraud Awareness’ is designed to assist you and your staff in recognising fraudulent behaviour and how to address corrupt conduct. Just like all of our training solutions, our Fraud Awareness course can be customised to fit your business’ unique needs, ensuring your entire organisation is aware of the signs of employee fraud.
With two decades of experience helping businesses across the Asia Pacific, we’re confident we can provide the training you need to reduce the occurrence of employee fraud in your organisation.
To learn more about any of our compliance courses, reach out to our team today.
