The Top 3 Red Flags for Workplace Fraud

Harriet Witchell - Monday, June 01, 2015
The Red Flags for Workplace Fraud
Red Flags for Workplace Fraud

It’s a bright, sunny day outside and an employee really doesn’t feel like going to work. They decide to call in sick and spend the day at the beach. It must be okay, because everyone does it. Right? Wrong. An employee claiming paid sick leave when they are fit to work is workplace fraud, and can lead to termination of employment. 

Workplace fraud can take many forms, whether it’s purchasing a few groceries on the company credit card, taking office supplies for personal use at home, right through to large-scale theft of equipment and money. While in many cases fraud is dealt with by termination of employment, sometimes it also involves a police investigation and possible imprisonment.
The statistics
A 2014 study by accounting firm PWC surveyed 5,000 organisations of various sizes and sectors across the globe. More than one-third of respondents said they had been struck by economic crime. The most common types of economic crime were: 
Asset misappropriation. 
  • Procurement fraud. 
  • Bribery and corruption. 
  • Cybercrime. 
  • Accounting fraud. 
KPMG’s biennial fraud survey of 281 companies in Australia and New Zealand found that respondents had a total loss through fraud of nearly $373 million in 2012. Employees were responsible for 75 per cent of major frauds. 

It is clear that fraud is a huge issue for all employers, as it adds significantly to the costs of running their organisations. 
Red flags for the risk of workplace fraud
Various analyses of workplace fraud carry a common message: Prevention is better than cure. If organisations are aware of the risk factors for workplace fraud, they may be able to take steps to prevent it. It may be surprising that greed is not considered to be the most significant motivator. Here are three of the main motivating factors behind workplace fraud. 

1. Workplace dissatisfaction 
Workers who are dissatisfied with their organisations or for whatever reason have an axe to grind may try to put things right (in their eyes, at least) by stealing from their employer. One example is the bookkeeper whose request for a salary increase of $100 per month was rejected by his employer. For the next 20 years, the disgruntled bookkeeper stole the amount of $100 per month until he retired. The lesson to employers is to strive to create a positive work environment in which employees feel happy and valued. Employers should also be alert to any rumblings of discontent. 

2. Financial hardship 
Workers who are strapped for cash may also turn to fraud. Fraud committed by this group often comes to the fore in times of economic hardship. An increase in job insecurity leads to people tightening their belts. This often fuels a temptation to use company money for personal expenses, for example using the company credit card to buy petrol for the family car. Also, gambling, and in particular playing poker machines, is known to be more popular in tough economic times and this activity seems to remain a key motivation for committing workplace fraud. Another reason why incidents of fraud seem to increase in tough financial times is because companies tend to scrutinise their books more closely in these periods, attempting to find ways to make savings. If companies are not as vigilant in good economic times, they may be unwittingly sending a message to employees that committing low-level fraud is okay because the company doesn’t pay much attention to that kind of thing. Employers should be on the lookout for fraud at all times, regardless of the economic climate. 

3. Opportunity 
The last major risk factor is opportunity. Some employees, especially managers, have opportunity to commit fraud because of their position in the company and their access to company funds. Recommendations to combat this include: 
  • Dividing responsibility so that no single person is responsible for managing company funds and assets. 
  • Establishing good regulation and controls so that books are regularly checked and employee activities are accounted for.
  • Continually educate staff about what constitutes fraud and what is unacceptable conduct. Workplace policies should also detail these things. 
Workplace fraud is a complicated and difficult aspect of running an organisation, but with identification of risk factors and adequate preventative measures in place, employers can successfully limit their exposure to workplace fraud. 


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