An Organization's Best Fraud Defense is Already on Their Payroll!

By Chrissie A. Powers, CPA/CFF, CFE, CVA

The Association of Certified Fraud Examiners (ACFE) released new stats which show 5% of an organization's revenue is lost annually to fraud, with more than 85% of the fraudsters in the study never having been charged or convicted for a fraud-related offense. Occupational fraud is a global problem, but how do you deter it within your organization?

An organizations number one line of defense is their employees. Employee education is critical to detecting and deterring fraud. An organization's staff needs to be trained on what constitutes fraud, how it affects everyone on their team, and how to report any suspicions of inappropriate behavior. Fraud perpetrators often display warning signs that they are engaging in illegal activities. The most common behavioral red flags displayed by the perpetrators in the ACFE study were living beyond their means (43% of cases) and experiencing financial difficulties (36% of cases). An organization needs to implement an anonymous and confidential hotline to receive tips, which prevent the employee from being labeled a "whistle blower."

Tips were the most common means of fraud detection. Tips represented 40% of reported cases according to the 2010 Report to the Nations. Employees were the source of almost half of those tips. Organizations with hotlines have reported suffering smaller monetary losses and a reduction in duration of the fraudulent scheme.

Fraud deterrence measures are necessary in order to prevent detrimental damage to an organization caused by occupational fraud. The number one line of defense is employees, as they are in the trenches on a daily basis. An organization might consider offering incentives for employees to report suspect activities that can be validated, such as 3% of the money recovered or $1,000 for a valid tip. Explain to employees that the job they could be saving might just be their own!

If you or your clients are interested in educating employees or assessing the organization's fraud risk, contact a member of our team at 614-745-5192.

Source: 2010 ACFE Report to the Nations on Occupational Fraud and Abuse