Fraud in the Workplace

There are many surveys where American workers have been polled with results showing that they estimate their employers lose from 8 to 20 percent of every revenue-dollar to fraud in the workplace. Specific fraudulent acts were:

• Theft of office items

• Excessive expense accounts

• Theft of inventory

• Claiming extra hours that were not actually worked

• Accepting kickbacks from suppliers

• Embezzlement

• Employers skimming untaxed and unaccounted money

• Falsely representing financial information to stakeholders

Employees are likely to have an intimate knowledge of the organization's assets, disposition, procedures regarding accountability, and means by which such checks can be circumvented. They are members of the system and have the ability to plan and execute dishonest acts that can effectively remain undetected. Insidiously, workplace fraud uses the resources of the organization to steal from it.

Experience Note

Often, fraudsters maintain meticulous records of their misdeeds on the very workstations and servers owned by the victim of their crimes.

Fraud committed within the business is easily done through indirect means, and for that reason, it is extremely difficult to detect. Employees are trusted to make discretionary decisions in ways that auditing and management are unable to detect. For example, an accounts payable manager authorizes the purchase of supplies from a company owned by herself and her brother. Of course, she is not stealing directly from her employer, but the company is not likely receiving the best price for their money. The company loses money, the employee gains, and the misdeed is probably never going to be detected.

Experience Note

The spectrum of unlawful and unethical employee actions (committed by all levels of employees) is only limited by the employee's imagination.

Employee Fraud Controls

As in all matters concerning critical assets, prevention is much better than cure. Detecting fraud and punishing those responsible tends to be expensive and time consuming. Lying in wait for employees to commit some unlawful deed, then punishing them, is a procedure that destroys morale and disrupts legitimate business activities. Developing mechanisms and cultures to ensure that employees act ethically from the outset will go a long way in preventing fraud.

Management Functions in Fraud Control

Management sets the example of workplace behavior and fraud prevention. If managers do nothing to prevent, detect, and control fraud, no one else will either. The traditional methods of fraud control such as auditing and internal controls are capable of detecting only a portion of unlawful employee acts. Consequently, fraud prevention is an outgrowth of management conduct and perception. Managers are responsible for creating an organizational culture of integrity. If the rules are enforced equally with clear responsibilities, accountabilities, and adequate records, then the basic platform exists where employees are able to do the right thing, provided they want to do the right thing.

Experience Note

Locks exist to keep honest people honest.

There must be clear avenues for fraudulent acts to be reported. Whistleblowers must be supported to provide accurate and truthful information. Managers should draft policies and procedures where exposing fraud receives tangible bonuses, sending a clear message that fraud will be not be tolerated.

Accountability

In business procedures, it is essential to identify the employee responsible for specific tasks and to whom the employee reports. Accordingly, the manager must be held accountable for her staff's performance. In this fashion, whether something goes right or goes wrong, the responsible employees are known.

Records

Records are an important part of accountability. Organizations must have the requirement of maintaining adequate records of all significant acts permitting the reconstruction of decision processes. Unless such records are generated and maintained, it may not be clear who has performed certain actions, the criteria on which the action is based, and who is responsible. The existence of adequate records provides avenues for review and auditing as well as deterring employees who might otherwise regard themselves free from accountability.