Fraud Investigations and Seeing the Bigger Picture

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With our years of experience in investigating cases of occupational fraud, we’ve proven that it is often the case that a suspected perpetrator of fraud is indeed guilty. After all, there won’t be any smoke if there isn’t fire, right?

It’s not just that, but for a huge percentage of the cases we’ve handled at Haywood Hunt, fraud generally occurs in more than one aspect of a person’s life. Now, this is certainly a matter of concern in fraud investigations.

But why?

Smoke and Fire

If someone is proven to be have committed some form of fraud, it often extends to other work areas as well. For instance, do you think that your employee who got caught tinkering with his or her timecard is only stealing from the organization by fiddling with his or her recorded time? It could be much, much worse. In most cases, proving someone has committed some fraud is like hitting the tip of the iceberg and then unearthing a mammoth after a thorough investigation.

Seeing the Bigger Picture

As fraud investigators, we often treat our initial investigation as an opportunity to have a deeper understanding of the perpetrator for two main purposes, namely:

  1. The person’s motivating factor, and
  2. To see if the deviant behavior or fraud extends to other areas which may or may or may not be related to the case.

As we’ve touched upon on our blog about The Fraud Triangle and occupational fraud prevention, people who are considered ‘nice’ and ‘good’; are capable of committing fraud and excusing their actions in their heads as somewhat normal and acceptable. How so? When someone is pressured in such a way that they perceive doing something is the only way out of whatever predicament they are in, you’d be surprised at what things someone can do without batting an eyelash!

Desperate Times Calls for Desperate Measures

A person with some fraud red flags is more likely to be doing the same in other areas of his or her life. In one of the cases we’ve handled, we were asked to investigate an employee who was proven to be stealing small items from his employer. Now, this is just a petty thing, right? But look at what we’ve uncovered upon further investigation. We found out that this person is managing and running his own business while clocked in and being paid by the company. We’re not saying that an employee having his or her own business is wrong, but working on your business while clocked in at your job is considered to be a form of stealing and yes, it is fraud!

The example above is not that extreme, but if someone is abusing the company’s resources (by stealing company time), there is a possibility that person could be engaged in other forms of fraud such as stealing office supplies, diverting company funds, potential internet abuse, and even potential corporate espionage!

That’s where we come in at Haywood Hunt. We try to see the big picture for you so you need not worry about the small things. If you suspect someone in your organization is committing some form of fraud or that you’re a victim of white collar crime, contact us and we’ll take care of examining the bigger picture. That’s what we call effective and truly thorough fraud investigation!

 

Understanding Why Fraud Occurs – The Fraud Triangle

 

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It is often a baffling question how fraud can happen in your organization; and if you’re asking this question, you’re one of the thousands of executives, managers, and business owners who want to find out how and why fraud happens. So how does fraud happen? What contributes to it? What are the signs it could be happening in your organization?

Understand Why Fraud Occurs

There are many reasons for fraud and a lot of factors can contribute to companies and systems being repeat victims of it. What you need to do is to understand these factors so that you can prevent occupational fraud from occurring at your workplace. After all, 5% of your total revenue could be going straight to the pockets of fraudsters!

The above goes to show that you must spare no effort in trying to minimize the risk of fraud and understanding the factors related to it. That’s fraud risk management in a nutshell, and you should take steps to address this matter as soon as you can. So, let’s talk about the Fraud Triangle.

The Fraud Triangle

Developed by the well-known criminologist Donald R. Cressey, The Fraud Triangle helps us understand the rationales and circumstances behind instances of occupational fraud. The triangle is composed of the following:

1 – Opportunity

Nothing would happen if not presented with an opportunity. In fact, normally honest individuals can be seduced to commit fraud if there is an opportunity.

Fraudsters take advantage of weak internal controls, low likelihood of detection, poor security, and lack of clear policy enforcement to abuse or use their position of trust to get some personal gain. All it takes is one weak moment and opportunity!

2 – Motivation or Incentive

Greed and need are the most common motivations for committing fraud. The temptation becomes too great when an opportunity presents itself as well. If pressured, an individual may commit fraud to cover needs to:

  • Pay bills
  • Sustain an addition (such as gambling or drugs)
  • Meet productivity targets in one’s work
  • Afford a better lifestyle and purchase status symbols such as bigger houses and better cars

3 – Rationalization or Attitude

Yes, even ‘nice’ people can commit fraud! It all boils down to what they tell themselves to be able to excuse such as act as ‘acceptable’. Believe it or not, some very righteous individuals possesses a character, attitude, and set of ethical values that allows them to commit dishonest acts intentionally.

Fraudsters often have a very normal view of themselves and do not consider their actions as wrong, or even bordering on criminal. It is often the case that employees who steal from the company rationalize their acts by reasons such as not getting promoted, not getting a raise, feeling that they are being paid too little, or thinking that their employer ‘deserves’ to  be fleeced. It is human nature to try to get as much as one can get and sadly, fraud results from that.

Now that you understand what The Fraud Triangle is, let this be one of your must-learn lessons in fraud prevention and occupational fraud. Society is vulnerable to white collar crime such as occupational fraud because of inadequate knowledge about how and why it occurs. It’s a great thing you’ve stumbled upon this fraud prevention blog article from one of the best private investigator teams in Toronto to help you along! Contact us and we’ll be glad to explain fraud prevention and detection further to you!

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Lessons in Fraud Prevention and Occupational Fraud

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We’ve been talking about occupational fraud, its detection, and prevention for the past few blogs, but not everyone may be aware what the term means and how their organization is vulnerable to it.

You see, occupational fraud is something worthy of much consideration, more so if you have a business with people working under you. After all, about $3.7 trillion dollars is lost to occupational fraud every year worldwide! Of that degree of loss, only 14% of all organizations are able to recover what was stolen from them. So what is this blog about? This is all about education and finding ways to at least mitigate fraud if not fully prevented. But how? Read on and find out below.

The 3 Steps Set-Up of a Fraud Prevention Program

  1. Know what fraud is and how likely it is to occur.
  2. Pin-point possible sources of fraud.
  3. Act on preventing fraud by having controls and fraud-prevention processes.

A fraud or crime-resistant organization often has a great anti-fraud corporate culture that covers all levels of the organization. It might take a while to take root, and you’ll have to nurture it, but with continuous effort, you can make occupational fraud be a thing of the past for your organization. Take note, the 3 steps above is essential!

So, What is Occupational Fraud?

Occupational fraud is defined as personal enrichment through the use of one’s position to deliberately misuse the organization’s assets or resources. Like what’s mentioned before in one of our blogs, occupational fraud has 4 elements, namely:

  1. It is not easily detected.
  2. It involves a violation of the perpetrator’s fiduciary responsibility to his or her employing organization.
  3. It is meant to benefit the perpetrator materially speaking, and
  4. It results to a loss for the employer or organization.

It goes without saying that the elements described above all means that fraud could be happening at your organization and you may not be aware of it!

3 Categories of Occupational Fraud

Occupational fraud can be as petty as stealing a few dozen folders from the organization’s office supplies, to swindling millions of dollars of organization assets. Here are the 3 categories:

  • Asset Misappropriations is when the organization’s assets are stolen or misused by fraudsters.
  • Corruption is when an individual (or individuals) use their position in the organization to manipulate business transactions in a way that would benefit them materially.
  • Fraudalent statements is defined as when a perpetrator falsifies the financial statements of the organization employing him or her to divert assets for his or her personal gain.

There are a lot more subtypes under these categories but the most common is falsifying financial statements (either by stealing inventory or padding expenses) which accounts for a median loss of about a million dollars for affected organizations. Now, let’s talk about reducing the risk of fraud, shall we?

Minimizing the Risk of Fraud

Totally stopping occupational fraud may not be possible, but there are steps to at least minimize the chances of it happening at your organization. You can try to provide annual training programs, perform thorough background checks, separate different roles or positions, continually scrutinize decisions and processes, have a whistle blower policy or program, and a whole lot more.  What matters is that these measures should be integrated into your corporate culture and that it is clear from the very start that there would be no exceptions for everyone caught, no matter who he is or who she is.

Want to know more about the best fraud prevention practices? Then contact the premier private investigator team in Toronto! We’ll do more than just help you prevent fraud, we’ll catch it when it happens!

Think Fraud Can’t Happen To You?

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Most managers and business owners think that their company or organization is immune to fraud, and they can’t be more wrong! As we’ve mentioned in another blog on stopping occupational fraud, about 5% of all revenue in companies and organizations is lost to theft or fraud by partners, owners, and employees who has access to a company’s assets. This means that there is a huge chance that fraud is happening in your organization, no matter how ‘small’ the fraud is.

It Happens

There is no denying that fraud exists, the only things which could be different for everyone would be the level and pervasiveness of fraud. Nonetheless, it is a problem for all organizations big and small. In fact, even the government deals with white-collar fraud!

The real problem with fraud is that not all organizations have taken measures to prevent or minimize it, not even employ ways to detect it for it to be thwarted before it happens. Perhaps it is the thought that one’s organization is immune to it, or perhaps it is complacency; but one thing is for sure, you can do something about fraud and it starts here!

5 Truths about Fraud

The beauty of acknowledging that fraud can happen is that you can be ready for it. You wouldn’t want to be a part of fraud statistics wouldn’t you? Here’s some eye-opening data from the 2014 Report to Nations to help you understand how serious fraud is and why it is important for you to minimize your risks as much as possible.

  • Organizational fraud costs an estimated $3.7 Trillion dollars every year. That is the approximated annual total for the Gross World Product’s estimated revenue loss of 5% to fraud.
  • More than 20% of all fraud cases costs at least $1 million, and that the median loss to fraud is at about $145,000.
  • Owners and CEOs sometimes commit fraud as well, and that the higher in the organization the fraudster is, the higher would be the value of the loss.
  • Fraudsters often have a clean record. They often do not have any criminal history that could be a red signal for fraud. First time offenders are not uncommon.
  • Approximately 58% of all organizations were not able to recover their losses from fraudsters.

It does not look good, eh? So here’s what you can do:

Fight Fraud

What you have to know is that you can do something about fraud. It can be as easy as having more effective policies to discourage and thwart fraudsters or hire some specialists to detect fraud when it happens. In fact, measures to detect fraud has been effective for discovering about 40% of all known cases. There are measures such as careful designs of internal controls and third party audits to help minimize the cases of fraud. It is all a matter of being proactive and understanding that although it is next to impossible to totally eradicate fraud, there are ways to get some control over it.

So what to do? You can start by following this blog and reading up on more of our fraud-related articles. If you want to truly find out if someone has been committing some sort of fraud in your organization, simply contact us and we’ll do our best as one of the leading private investigators in Toronto. It won’t hurt to be more proactive!

9 Red Flags of Fraud in Small Business

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1.)  Employee lifestyle and behavioural changes, living beyond their means.
2.) Weak internal controls/ lack of segregation of duties (i.e. one employee handles all the bank statements, cash transactions and deposits). Ensure double manned deposits and over sight on cash controls.
3.) Management overriding company policies or controls without proper authorization
4.) Inconsistent financial results to market trends
5.) Lack of credible documentation or information (i.e. lack of original receipts for expense reports)
6.) Excessive number of account write offs or unexplained adjustments
7.) Accounts not reconciled on a timely and consistent basis.
8.) Unexpected change of vendor or a vendor without a physical address
9.) High employee turnover

What Makes Your Organization Vulnerable to Fraud

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We’ve been focusing on tips about detecting and preventing fraud lately but let’s face it, none of those will work if you are not doing anything about what makes you vulnerable to fraud. Your weaknesses are costing you a great deal of money and the more you are not looking into what makes your organization vulnerable to fraud, the more it will cost you in the long run.

Fraud Risk Checklist of Characteristics

Do you want to know what makes your organization vulnerable to fraud? Checkout what’s written below!

  • You think that fraud does not concern nor affect you. Non-profit organizations, businesses, and charities are losing millions to scams each year; because guess what, some scams are specifically designed to con a specific organization. What makes things worse is that most victims of fraud and scam aren’t even aware that they’ve been victimized. Could you be one of them?
  • You believe that you don’t have time to deal with or get more information about fraud. There are tons of free fraud prevention resources You’re reading one of them now!
  • You don’t have a set of procedures for authorizing purchases, paying invoices, and reviewing expenditures.
  • You often agree to pay invoices and pay invoices over the phone. Have you heard of phoney invoices? Yes, they do exist!
  • You often pay bills without checking if they are your legitimate bills. Paying just to get things over and done with is one loophole that scammers are forever exploiting.
  • You go through frequent staffing changes. A high turn-over rate for volunteer and/or part-time staff members means more people knows how things work in your organization. It is only a matter of time before a ‘trusted’ colleague or staff slips and lets out crucial information that fraudsters can use against you.
  • Your organization is subscribed to a lot of services. Do you know that oftentimes, companies are still charging clients long after their subscription has ended? There are also times that a fake invoice for a subscription fails getting detected because too many subscriptions means you may not be able to keep track of everything. This is how a fraudulent company creeps in to your books and becomes one of your regular bills.
  • You don’t believe in reporting fraud. Some organizations simply do not report fraud because they’re ashamed or embarrassed or just don’t know what to do. Some believe that no good will come out of reporting and that it is an utter waste of time. Do not be a part of the estimated 95% of fraud victims who never report it. Law enforcement agencies and other businesses depend on you to take fraudsters off the radar and make conducting business safe for everyone.
  • You don’t believe in having measures to prevent fraud. Have you heard of the phrase “if you are not part of the solution, then you are a part of the problem?” That truly applies here. Failing to protect yourself from fraud by at least trying to prevent it is like jumping unto a lake with your ankles shackled to a big boulder. There is near no way you won’t drown. Are you sure you are fine with that?

Act fast by acting now. Read our fraud prevention and fraud detection articles to see how you can start making your organization better at deterring fraud. Don’t hesitate to contact us if you need further help. Remember, freeing your organization from fraud starts with you!