occupational fraud

occupational fraud


Most small business owners do not think that their businesses could fall victim to occupational fraud. They think that only large corporations suffer of that. However, various research performed by independent organizations demonstrate that small businesses are the one who stand to lose the most to occupational fraud. The reason is that typically there are few checks and balances in small companies and fraudsters know that.


Occupational fraud goes undetected on average for a period of 18 months.



What is occupational fraud?


Occupational fraud is defined by the Association of Certified Fraud Examiners as:

“The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.”


Facts about occupational fraud


Occupational fraud is big problem for businesses of all sizes. According to the 2012 ACFE Report to the Nation on Occupational Fraud and Abuse:

  • The median loss caused by the occupational fraud cases was $140,000.
  • The frauds reported lasted a median of 18 months before being detected.
  • Occupational fraud is a significant threat to small businesses. The smallest organizations in the study suffered the largest median losses. These organizations typically employ fewer anti-fraud controls than their larger counterparts, which increases their vulnerability to fraud.
  • The industries most commonly victimized in the current study were the banking and financial services, government and public administration, and manufacturing sectors.

One of the challenges entrepreneurs encounter in the detection of occupation fraud is that most frauds starts small and then gets bigger and bigger, until something becomes noticeably different or unusual. However, by then it is too late, your business may have lost hundreds of thousands of dollars.


Four common employee red flags to watch for:


  1. Employee lifestyle changes: expensive cars, jewelry, homes, clothes
  2. Significant personal debt and credit problems
  3. Behavioral changes: these may be an indication of drugs, alcohol, gambling, or just fear of losing the job
  4. Refusal to take vacation or sick leave

So, what can you do?


Take action now! Stop the internal bleeding, apply direct pressure.

The best fraud deterrent is the taught that the employee will be caught and punished. Small business can implement simple and cost effective measures:

1. If you have bank statements mailed, have them mailed to your home or P.O. Box.
2. Inspect (You) your bank statements every month upon receiving them before giving them to your bookkeeper.
3. Have your bookkeeper perform monthly bank reconciliations.
4. After bank reconciliation is completed, review it and ask questions. Look for typical “dumpster accounts” like “Miscellaneous Income/Expense” “Ask my accountant” or “Over/Short Adjustment”.
5. Install cameras if your business handles liquid assets (cash, checks, etc) or has inventory that can easily be removed from site.

When your staff see that you are vigilant, you are sending a message that management is on top of the finances of the company and the one who was thinking about walking away with your hard earned money would have to think at least twice before committing fraud.
If you need help in the implementation of specific cost effective controls for your business, please contact us.