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Occupational Fraud

Occupational fraud is commonly known as employee fraud and is committed against an organization or Company or business by its own officers, directors, or employees, according to the Association of Certified Fraud Examiners (ACFE).

Occupational fraud is likely the largest and most prevalent threat to businesses and can easily be described as the costliest and most common form of financial crime in the world.

This kind of fraud is commonly put into three categories:

  1. Misappropriation of assets
  2. Corruption
  3. Financial statement fraud.

And they fall under the same umbrella.

It is imperative to note that all organisations or businesses are prone to occupational fraud. However, we observe that small businesses, quite often don’t have a detection system in place as there may be a financial issue with putting policies in place, or a sole proprietor may not be fully aware of how to prevent and detect fraud.

So here are some examples of Occupational Fraud:

  • Collusion with a vendor to make false payments for goods or services that were never delivered or fictitious goods or services payment.
  • Bribe or kickbacks, in which an employee receives payments from a third party in exchange for business advantages.
  • Product substitution, in which an employee colludes with a supplier to replace purchased goods with lower quality or counterfeit goods.
  • Bribery, in which an employee uses company funds to provide benefit to another business or individual in exchange for business advantage or personal gain.
  • Theft of cash, services, inventory, time, or intellectual property
  • Falsified expense reports.
  • Purchase order schemes, in which payments are made to false vendors.
  • Use of Company funds for personal expenses
  • Personal use of company vehicles or machines.
  • Falsifying sales records
  • Inflating the value of an asset.

So, what are the red flags we can look out for to detect Occupational Fraud?

  • Employee is living beyond their means
  • Employee has consistent financial difficulties
  • Employee is unusually close with a vendor or customer
  • Employee is controlling and/or unwilling to share duties or delegate
  • Employee subverts standard processes and acts as if the rules don’t apply to them.
  • Employee refuses to go on vacation.

To mitigate these red flags, below are a few tips we can apply to protect oneself from occupational fraud:

  • Surprise audits or review of financial activities within an organisation.
  • Introduction or enhancement of anti-fraud policies and employee support programs, which provide counselling to employees with personal problems that are affecting their work.
  • Job rotation within an organisation.

You can learn more about how to protect yourself from fraud and what to do if you are a victim, by engaging with AACAS on the following platforms.

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