Five Points Bank Blog

How to be a Fraud Fighter in your organization

What is Fraud?

In the broadest sense, the term fraud encompasses actions that are meant to deceive for financial or personal gain. It’s any intentional or deliberate act to deprive another of property or money by guile, deception or other unfair means. Occupational fraud is fraud committed by people who work for, or do business with, an organization. This specific form of fraud represents a real and large risk to any organization that employs individuals.

Why should we care about fraud?

Fraud costs billions of dollars in damage to companies, governments and individuals each year. Additionally, fraud can dramatically affect the quality of life of its victims — and the employees of its victims— resulting in job losses, the loss of savings and investments, weakened trust in public institutions and a significant strain on resources.

What constitutes occupational fraud?

Asset Misappropriation

Schemes in which an employee steals or misuses an organization’s assets. Common examples include skimming payments received from customers, intercepting outgoing vendor payments and overstating reimbursable expenses.

Corruption

Schemes involving a fraudster wrongfully using their influence in a business transaction to obtain a personal benefit or a benefit for another person (e.g., their spouse, children, or friends). Examples of corruption schemes include failing to disclose conflicts of interest, accepting illegal gratuities and paying bribes for favorable business decisions

Financial Statement Fraud

Schemes involving the intentional misreporting of an organization’s financial information with the intent to mislead others (e.g., investors, debtors or government authorities). Examples include creating fictitious revenues and concealing liabilities or expenses.

What are some of the most common occupational fraud schemes committed by employees?

Some of the more common frauds committed by employees include the theft of company assets, such as cash or inventory, and the misuse of company assets, such as using a company car for a personal trip. Here are more details about the schemes.

• Stealing Cash
• Payment Tampering Schemes
• Billing Schemes
• Expense Reimbursement Schemes
• Payroll schemes
• Inventory Fraud Schemes

What are behavioral red flags of fraud?

Fraud can be committed by anyone, making it important for all employees to be aware and observant of behavioral red flags that might indicate a potential fraudster. However, it is important to note that sometimes these indicators also apply to honest people, so their presence alone does not mean that someone is committing fraud. Based on ACFE research, here are the six most common behavioral red flags of fraud:

Living beyond means

Big spending is often an indicator of fraudulent behavior, especially if an employee’s salary does not line up with their lifestyle.

Financial difficulties

Financial problems are often cited as a motivation by those who commit occupational fraud. Examples include high student loan debt, car loans, mortgages, taxes or high credit card debt.

A close personal relationship with vendors or customers

This might indicate a conflict of interest or collusion between an employee and a vendor or customer.

Control issues or an unwillingness to share duties

Fraudsters might fear that they will be caught if they share their job duties with another employee. They may not use their allotted time off, or they might come up with excuses to gatekeep information from their colleagues.

Irritability, suspiciousness or defensiveness

Fraudsters may act unusually paranoid or harsh with colleagues in order to project suspicion onto others or to discourage questions.

“Wheeler-dealer” attitude

A fraudster may display an attitude involving shrewd or unscrupulous behavior.

What can be done to prevent fraud?

Every employee, regardless of position, can help prevent fraud. Organizations should consider putting anti-fraud controls in place that are proven to reduce the cost of fraud. According to the Report to the Nations, the six anti-fraud controls that showed the greatest association with lower fraud losses were:

• An established, company-wide code of conduct
• An internal audit department
• Management certification of financial statements
• External audit of internal controls over financial reporting
• Management review
• Hotlines

Preventing fraud is not just the responsibility of management, the board of directors, the inspector general or the audit team. Everyone has a role to play in the prevention of fraud. Help your organization protect its finances — and its reputation — from harm. Be alert to potential fraud and educate your colleagues on how they can be fraud fighters too.