November 12-18 is International Fraud Awareness Week and this is a great time to talk about occupational fraud in the workplace. Whilst we all want to trust our workers and we know that, for the most part, all of our workers are honest, there continues to be regular occurrences of employee perpetrated fraud in businesses within Australia and around the globe.
Employee perpetrated fraud is an issue for all organisations but according to the Association of Certified Fraud Examiners in their last Report to the Nations 2022, smaller businesses are particularly vulnerable.
This can be because smaller business often lack systems, controls, training and general awareness of the risks they face. The ACFE stated in their Report that “Small organizations face unique challenges in combatting fraud—from limited financial resources and smaller staff sizes that require many individuals to perform numerous functions, to the large amount of trust needed to keep operations running and the business growing. Unfortunately, that means that many of the protective anti-fraud controls that larger organizations rely on are simply not enacted within small businesses”.
The ACFE reported in their global survey that:
- Asset misappropriation is the most common of occupational frauds (86%) which is stealing or misusing business assets, with a median loss of $100k per incident
- Other fraud types were associated with expense reimbursement, skimming, payment tampering, payroll fraud and billing & invoicing fraud
- 42% of all frauds are detected via tip offs, with most tip offs coming from employees. Notably in the Asia Pacific Region, this statistic climbs to 58%
- Organisations with fewer employees had the highest median loss at $150k per event (small business is defined as > 100 employees)
Much of the occupational fraud in small business goes unreported or at the least gets only minor media coverage, which see’s it “fly under the radar” of many business owners. So what can small business owners do?
Here are 5 Red Flags the small businesses should take notice of if they think there may be something unusual afoot in their organisation:
- Employees resisting job rotation or refusing to take annual leave breaks
- Missing stock
- Reimbursement irregularities including things such as travel costs
- Unusual purchases on company credit cards or increases in card spending
- Employees appearing to live beyond their means or making significant sudden large purchases
What are some steps small business owners can put in place to prevent occupational fraud?
- Ensure segregation of duties is set up – so that no one person approves transactions from beginning to end; that there is a system on approval or checking
- Ensure employees take chunks of annual leave so that their job needs to be undertaken by another team member; job rotation
- Conduct a Fraud Risk Assessment – engage a suitably qualified expert to help you complete this activity within your business
In current economic times where we are all feeling the pinch, both personally and in business, it is important to be aware that events of occupational fraud could take place within your business. With the upcoming holiday season placing additional financial pressure on individuals as well as time pressures and general “busyness” in the workplace, ‘tis the season to be additionally vigilant with regard to this risk.
Whilst we want to exist in an environment of positive working relationships with harmony and trust, being aware of red flags and having some systems in place in your business could help you prevent incidents of occupational fraud, or at the very least detect them early if they’re happening to you.