Stephen A. Rollins Jr., CPA
Accounting & Auditing Director
When the numbers don’t add up, no one wants to think of fraud in the workplace. But with more than $100,000 in median losses among small businesses and twice that much among larger organizations, occupational fraud represents a significant financial hit for businesses and nonprofits that are victimized.
Who commits occupational fraud?
According to a global study of nearly 2,700 fraud cases by the Association of Certified Fraud Examiners, employees below manager level were involved in 44% of workplace financial fraud, while managers were responsible for 3% .
But even owners and executives committed 19% of the fraud reported in the study, and the financial damage they did was eye popping — with median losses of $850,000.
By comparison, the median financial losses associated with lower-level employees was $50,000 and managers, $150,000.
Several reasons were cited for the disproportional financial damage done by business owners and executives:
- They have greater access to an organization’s assets.
- They may have greater technical ability to hide fraud.
- They use their authority to conceal their crimes.
- Owners and executives are more likely to collude with others, compounding the financial losses.
- The length of time that owner/executive-level fraud continues before discovery is a median of 24 months, compared with 12 to 18 months for lower-level employees.
Common red flag behaviors
The study identified six behaviors that have consistently surfaced as “red flags” since the tracking of fraud data started more than a decade ago:
- An employee or executive is living beyond their means.
- They are experiencing financial difficulties.
- They are unusually close to a vendor or customer.
- They exert excessive control.
- They have experienced a recent divorce or family issue.
- They exhibit shrewd or unscrupulous behavior.
Acknowledging that fraud can occur in your business is difficult, but a proactive effort to put the right financial controls and other safeguards in place may help protect you.
If you would like to discuss improvements to your financial controls and safeguards, contact us for a confidential discussion.
