June 5, 2011
Minding Your Own Business
Deterring Occupational Fraud
By Jennifer McCracken, CFE
It is easy to say that the current economic condition is putting a tight squeeze on business finances. Maybe a closer look is necessary. Where exactly are your business dollars going? Is it the economy or is it occupational fraud? There are steps to identifying if fraud is the culprit by minding your own business.
Fraud is always prevalent in businesses; however, it is heightened when the economy is in a downward spiral. According to the Association of Certified Fraud Examiners (ACFE), Occupational Fraud is defined as; “the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.” In a business employees and vendors are vulnerable areas for fraud. Small businesses are at a higher risk for occupational fraud due to lack of anti-fraud controls. The risk is worth mitigating as the act of one employee of a firm with less than 100 employees can mean the demise of the company. Large corporations with more than 100 employees tend to have security divisions that continuously detect and deter fraud. Fraud still occurs in these larger companies but it does not have the same affect like it does smaller businesses.
According to the 2010 Report to the Nation released by the Association of Certified Fraud Examiners (ACFE), occupational fraud occurs in all different size companies however, the damage is the worst among small businesses. A survey of fraud cases was taken and the median loss suffered by organizations was $160,000. Almost 25 % of the frauds involved losses of at least $1 million. Fraudulent acts on average take 18 months to detect. A lot of damage can be done in 18 months. “More than 80% of the frauds in [the] study were committed by individuals in one of six departments: accounting, operations, sales, executive/upper management, customer service or purchasing.” Conducting a background investigation on employees is definitely important, however, it does not protect against the average fraud perpetrator. The ACFE study found “more than 80% of fraudsters in [the] study had never been previously charged or convicted for a fraud-related offense”.
Small business owners hire individuals they trust with the belief their business is safe and leave all the control and power in one person’s hands. Employees and management are both at risk for fraudulent acts. Vendors have to be carefully viewed as well. Some fraud techniques by vendors can include inflated invoices, merchandise shortages and duplicate invoice submissions. This is where a business owner needs to mind their own business by installing internal controls. Both employees and Vendors need to be aware that detection is prevalent in the business. It is imperative no matter how large a business is they have anti-fraud controls in place.
Businesses should not wait for a catastrophic event that devastates the well being of their company or reputation. Being aware and educated about the prevalence of fraud in small business is imperative to its survival and longevity. Be aware of how to deter and detect some of the most common fraudulent schemes like skimming, theft of daily deposits, voided sales, fictitious returns, lapping, false credits and inventory schemes
The ACFE is the world's premier provider of anti-fraud training and education. Together with nearly 50,000 members in over than 125 countries, the ACFE is reducing the incidence of fraud and providing the training and resources to fight fraud more effectively. For more information about the ACFE, visit www.ACFE.com.
The ACFE suggests the following steps for a business in combating business fraud.
Combating Small Business Fraud
There are some simple steps a small business can take to identify and effectively manage potentially costly fraud losses.
1. Be proactive.
Establish and maintain internal controls specifically designed to prevent and detect fraud. Adopt a code of ethics for management and employees. Set a tone at the top that the company will not tolerate any unethical behavior.
2. Establish hiring procedures.
Every company, regardless of size, can benefit from formal employment guidelines. Background investigations should always be conducted when hiring staff. Check educational, credit and employment history, as well as references. After hiring, incorporate evaluation of the employee's compliance with company ethics and antifraud programs into regular performance reviews.
3. Train employees in fraud prevention.
Once carefully-screened employees are on the job, they should be trained in fraud prevention. Are employees aware of procedures for reporting suspicious activity by customers or co-workers? Do workers know the warning signs of fraud? Ensure that staff know at least some basic fraud prevention techniques.
4. Conduct regular audits.
High risk areas, such as financial or inventory departments, are obvious targets for routine audits. Surprise audits of those and all parts of the business are crucial.
5. Call in an expert.
For most firms, fraud examination is not a core business component. That's why, when fraud is suspected or discovered, it is imperative to enlist the anti-fraud expertise of a Certified Fraud Examiner (CFE). The CFE credential is recognized by businesses and governments worldwide as the standard for fraud prevention and detection.
About the author:
Jennifer McKenzie McCracken has over 17 years of fraud investigative experience. She is a North Carolina licensed Private Investigator, #2043, Certified Fraud Examiner and Senior Investigator for Diamond Eye Legal. She has provided her expertise in occupational fraud, insurance fraud, corporate espionage, Ponzi and Pyramid schemes, domestic and criminal cases. Investigator McCracken can be contacted at 919-886-5001 or Jennifer@Diamondeyelegal.com
Deterring Occupational Fraud
By Jennifer McCracken, CFE
It is easy to say that the current economic condition is putting a tight squeeze on business finances. Maybe a closer look is necessary. Where exactly are your business dollars going? Is it the economy or is it occupational fraud? There are steps to identifying if fraud is the culprit by minding your own business.
Fraud is always prevalent in businesses; however, it is heightened when the economy is in a downward spiral. According to the Association of Certified Fraud Examiners (ACFE), Occupational Fraud is defined as; “the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.” In a business employees and vendors are vulnerable areas for fraud. Small businesses are at a higher risk for occupational fraud due to lack of anti-fraud controls. The risk is worth mitigating as the act of one employee of a firm with less than 100 employees can mean the demise of the company. Large corporations with more than 100 employees tend to have security divisions that continuously detect and deter fraud. Fraud still occurs in these larger companies but it does not have the same affect like it does smaller businesses.
According to the 2010 Report to the Nation released by the Association of Certified Fraud Examiners (ACFE), occupational fraud occurs in all different size companies however, the damage is the worst among small businesses. A survey of fraud cases was taken and the median loss suffered by organizations was $160,000. Almost 25 % of the frauds involved losses of at least $1 million. Fraudulent acts on average take 18 months to detect. A lot of damage can be done in 18 months. “More than 80% of the frauds in [the] study were committed by individuals in one of six departments: accounting, operations, sales, executive/upper management, customer service or purchasing.” Conducting a background investigation on employees is definitely important, however, it does not protect against the average fraud perpetrator. The ACFE study found “more than 80% of fraudsters in [the] study had never been previously charged or convicted for a fraud-related offense”.
Small business owners hire individuals they trust with the belief their business is safe and leave all the control and power in one person’s hands. Employees and management are both at risk for fraudulent acts. Vendors have to be carefully viewed as well. Some fraud techniques by vendors can include inflated invoices, merchandise shortages and duplicate invoice submissions. This is where a business owner needs to mind their own business by installing internal controls. Both employees and Vendors need to be aware that detection is prevalent in the business. It is imperative no matter how large a business is they have anti-fraud controls in place.
Businesses should not wait for a catastrophic event that devastates the well being of their company or reputation. Being aware and educated about the prevalence of fraud in small business is imperative to its survival and longevity. Be aware of how to deter and detect some of the most common fraudulent schemes like skimming, theft of daily deposits, voided sales, fictitious returns, lapping, false credits and inventory schemes
The ACFE is the world's premier provider of anti-fraud training and education. Together with nearly 50,000 members in over than 125 countries, the ACFE is reducing the incidence of fraud and providing the training and resources to fight fraud more effectively. For more information about the ACFE, visit www.ACFE.com.
The ACFE suggests the following steps for a business in combating business fraud.
Combating Small Business Fraud
There are some simple steps a small business can take to identify and effectively manage potentially costly fraud losses.
1. Be proactive.
Establish and maintain internal controls specifically designed to prevent and detect fraud. Adopt a code of ethics for management and employees. Set a tone at the top that the company will not tolerate any unethical behavior.
2. Establish hiring procedures.
Every company, regardless of size, can benefit from formal employment guidelines. Background investigations should always be conducted when hiring staff. Check educational, credit and employment history, as well as references. After hiring, incorporate evaluation of the employee's compliance with company ethics and antifraud programs into regular performance reviews.
3. Train employees in fraud prevention.
Once carefully-screened employees are on the job, they should be trained in fraud prevention. Are employees aware of procedures for reporting suspicious activity by customers or co-workers? Do workers know the warning signs of fraud? Ensure that staff know at least some basic fraud prevention techniques.
4. Conduct regular audits.
High risk areas, such as financial or inventory departments, are obvious targets for routine audits. Surprise audits of those and all parts of the business are crucial.
5. Call in an expert.
For most firms, fraud examination is not a core business component. That's why, when fraud is suspected or discovered, it is imperative to enlist the anti-fraud expertise of a Certified Fraud Examiner (CFE). The CFE credential is recognized by businesses and governments worldwide as the standard for fraud prevention and detection.
About the author:
Jennifer McKenzie McCracken has over 17 years of fraud investigative experience. She is a North Carolina licensed Private Investigator, #2043, Certified Fraud Examiner and Senior Investigator for Diamond Eye Legal. She has provided her expertise in occupational fraud, insurance fraud, corporate espionage, Ponzi and Pyramid schemes, domestic and criminal cases. Investigator McCracken can be contacted at 919-886-5001 or Jennifer@Diamondeyelegal.com
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