Fraud Detection
Employers place their trust in employees to assist in making business run smoothly. When an employee abuses that trusting relationship for their personal gain, the fallout is typically harsh. Occupational fraud is defined as, “the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.” Occupational fraud is but one category of fraudulent conduct.
Who commits fraud?
Generally fraud is committed by trusted, long-time employees. Fraud can be committed by partners, shareholders, trustee’s and volunteers. Fraud can also be committed by family members, managers, supervisors and owners.
Where do they do it?
The workplace is far and away the most common place fraud occurs.
When do they do it?
Fraud can only occur when a person has both of the following: access to company assets and the authority, or the means to by-pass authority, over financial transactions.
Why do they do it?
Many people commit fraud due to a change in their personal situation, addictions, health issues, or a financial need that is perceived to be too private to share with others.
How do they do it?
Typically fraud is committed when an employee steals or misuses the company’s resources, an employee misuses his or her influence in a business transaction in a way that violates his or her duty to the employer in order to gain a benefit, or an employee intentionally causes
a misstatement or omission of material information in the company’s financial reports.
How is fraud discovered?
Fraud is usually discovered by accident or reported by a tip. Tips can come from employees, suppliers, customers, or even family members. According to the Association of Certified Fraud Examiners, over 42% of the cases detected is a result of a tip with employee tips accounting for almost half.
Are there signs of fraud?
The initial detection of fraud is critical. Decisions must be made quickly to mitigate losses and initiate a strategy. These signs are sometimes difficult to separate from the signs of a good and loyal employee who is safe guarding company assets. The following are some examples of the more frequent observations found when fraudulent behavior exists:
Who commits fraud?
Generally fraud is committed by trusted, long-time employees. Fraud can be committed by partners, shareholders, trustee’s and volunteers. Fraud can also be committed by family members, managers, supervisors and owners.
Where do they do it?
The workplace is far and away the most common place fraud occurs.
When do they do it?
Fraud can only occur when a person has both of the following: access to company assets and the authority, or the means to by-pass authority, over financial transactions.
Why do they do it?
Many people commit fraud due to a change in their personal situation, addictions, health issues, or a financial need that is perceived to be too private to share with others.
How do they do it?
Typically fraud is committed when an employee steals or misuses the company’s resources, an employee misuses his or her influence in a business transaction in a way that violates his or her duty to the employer in order to gain a benefit, or an employee intentionally causes
a misstatement or omission of material information in the company’s financial reports.
How is fraud discovered?
Fraud is usually discovered by accident or reported by a tip. Tips can come from employees, suppliers, customers, or even family members. According to the Association of Certified Fraud Examiners, over 42% of the cases detected is a result of a tip with employee tips accounting for almost half.
Are there signs of fraud?
The initial detection of fraud is critical. Decisions must be made quickly to mitigate losses and initiate a strategy. These signs are sometimes difficult to separate from the signs of a good and loyal employee who is safe guarding company assets. The following are some examples of the more frequent observations found when fraudulent behavior exists:
- The balance sheet does not balance.
- Locked drawers or cabinets.
- Strict control of job responsibilities.
- An employee not wanting their authority to be questioned.
- Minimal or no reported cash sales for a company that might be expected to receive cash on a regular basis, such as a restaurant.
- Significant and consistent adjustments to the accounts receivable account.
- Higher level of sales returns during specific times of the day or during a specific employee's shift.
- Significant transactions with related parties or with supplies whose details are unknown.
- No clear separation of accounting duties.
- Refusal to take vacation or time off from work.
- Distinct difference between an employee’s income and their lifestyle (the most common red flag).
- An employee who continually claims to rewrite accounting records for neatness in
presentation. - Swings in inventory, sales, or cost of sales.
- Unexplained accounting adjustments or incomplete records.
