Employee fraud is one of the most expensive liabilities organisations face, yet many companies wait until they are victims before they put in place some fraud control mechanisms needed to prevent it. Most fraudulent activities are ongoing and may remain undetected and what can be done is to take note of common warning signs of fraud. Doing so can protect your business. Fraud is a serious issue, as it has several impacts, including financial loss and harm to reputation of organisations.
Be it a small or large organisation, a partnership or non-profit-making entity , all of them have faced fraud at some point. Smaller businesses are, however, often more vulnerable to fraud due to ineffective or non-existent anti-fraud measures. Fraud in the workplace may be defined as the use of one’s occupation for personal enhancement through the deliberate misuse or misapplication of the employing organisation’s resources or assets. Fraud, in the context of a business, refers to criminal acts that may result in material or financial loss for the company. One of the biggest tasks of organisations is detecting, investigating and avoiding employee fraud. You can only reduce it by gaining a better understanding of what constitutes workplace fraud and by putting systems in place to combat fraud.
Triggers of fraud at workplaces
Most fraudulent activities are committed due to pressure on the employee and the external environment. Pressure to meet personal targets, pressure of working hard for survival or some personal factors like debt can lead the employee to commit fraud. External factors like — family difficulties or pressure of financial support to family can also trigger fraud, especially when the cost of labour is less than the cost of living. Opportunities at workplaces can also trigger fraudulent behaviour. An opportunity of committing a fraud and knowing he or she will go unnoticed provokes the employee to do it. Types of fraud commonly committed in small businesses
Data or theft of trade secrets is one type of employee-fraud that can be devastating to a company that relies on its intellectual property for its product or service. This type of theft can also compromise the company when personally identifiable information is stolen. This type of data theft can include trade-secret theft, where information is being stolen to be sold to a competitor.
Accounting fraud is another type of fraud that affects organisations. This is when an employee manipulates a company’s accounts to cover up theft or uses the company’s accounts payable and receivable to steal or commit accounting fraud. Fake suppliers is also another fraud. This happens when an employee sets up a fake supplier and bills the company for goods or services not provided. Normally, the employee will forge the invoices and even the receipts.
Personal purchases can also be another example that goes under the accounting department. This is also fraud and the only way to reduce it would be to implement tight internal controls on accounting functions, conducting random audits of accounts payable and accounts receivable records.
Insignificant fraud is common in almost all organisations. Normally, employees do not consider themselves guilty as they think doing this type of fraud does not pose any loss to the organisation. This kind of fraud includes things like stealing office stationery, taking personal printouts, altering the bills which are reimbursed by a company. Impacts or effects of fraud at workplaces It is necessary to take steps to prevent fraud, as it can cause loss of funds or goods in an organisation. Most organisations are operating on a loss not because they are actually on loss, but fraudulent activities will be contributing factors.
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Fraud, which can cause high loss to the organisation, definitely affects the employee’s morale. Internal trust of employees can be damaged, especially when fraudulent activities affect the organisation. Not only the employees will be affected, even the customers can also be affected if they overhear such practices are taking place within an organisation.
Detecting and preventing fraud
Organisations should establish a zero-tolerance policy to fraud, which imposes strict punishment for infractions of stated rules, with the intention of eliminating all undesirable conduct.
Proactively audit operations and keep an eye open
Proactive and surprise audits send powerful signals that fraud will not be tolerated. We emphasise prevention in our personal health, and you should do the same for your company’s financial health. Regularly, conduct fraud risk assessments as an organisation. Fraud-risk assessments can reduce average loss by systematically identifying where and how fraud may occur and who may be in a position to commit it.
More so, employers are supposed to keep an open eye on employees in all departments and check randomly on accounts, purchases and sales departments. Also, employers should avoid entrusting the entire accounting to a single person. Assign the task of counting the inventory to someone else other than the person who handles the inventory maintenance. Keep an open eye on an employee with unusual behaviour.
Organisations are supposed to have stringent rules and policies in order to reduce fraud and theft. Having strict internal controls may help the company to identify fraud at workplaces. After you find the culprit, disciplinary action should be taken against them, so that the behaviour does not continue.
Emmanuel Zvada is a human capital consultant and an international recruitment expert. He writes in his personal capacity.
