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
- Know what fraud is and how likely it is to occur.
- Pin-point possible sources of fraud.
- 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:
- It is not easily detected.
- It involves a violation of the perpetrator’s fiduciary responsibility to his or her employing organization.
- It is meant to benefit the perpetrator materially speaking, and
- 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!