Occupational Fraud
Throughout today's ever-changing
business climate of mergers, acquisitions, downsizing, and the age of
computers, there has been one constant factor. That factor is
occupational fraud.
The Association of Certified
Fraud Examiners recently prepared a report to the nation on occupational fraud
and abuse. This report was based on 2 1/2 years of study of actual fraud
and abuse cases collected from 2,608 Certified Fraud Examiners.
The report estimates that the average
organization loses more than $9 a day per employee to fraud and abuse and that
the average organization loses approximately 6% of its total annual revenue to
fraud and abuse committed by its employees. The total estimated cost of
occupational fraud and abuse is $400 billion dollars annually. The most
costly abuses occurred in organizations with fewer than 100 employees.
The above numbers should have
every organization on the alert for occupational fraud and abuse. The
best way to minimize occupational fraud and abuse is to stop it before it
starts.
How do you prevent occupational
fraud and abuse? Implement a fraud policy. The more aware an
employee is that their employer is keeping a watchful eye on fraud, the less
likely they will be to commit fraud. The policy also makes the
organization plan on how to handle allegations and what to do if an employee
commits a fraudulent act.
The following is a list of items
that should be addressed within your fraud policy:
• The policy
should state that every employee is covered. This would include
management and executives.
• The acts
that constitute fraud and abuse should be outlined. For example, forgery,
misappropriation of assets, accepting
gifts from vendors, destroying records, and
impropriety with respect to reporting
financial transactions are a few of the actions
that would constitute fraudulent conduct.
• Those
responsible for investigating the fraud should be outlined.
•
Confidentiality should be an important part of your policy. An
organization should
not disclose an internal fraud
investigation to outsiders unless ultimately necessary.
• Termination
policies if an employee commits a fraudulent act should be outlined.
• Communication
of the fraud policy is very important. It does no good to have a
fraud policy if it is not communicated to
the employees. The organization should
try and communicate the policy in a
positive manner.
The above list is not all-inclusive,
but is a good start on what to include in your fraud policy. An
organization that implements a fraud policy is taking steps to impact their
bottom line. Any organization that implements a fraud policy must have
due diligence in defining their standards and implementing their procedures.
In late 1996 and early 1997,
Chris and Jack both became Certified Fraud Examiners. Since that time,
they have both had significant exposure to creating and implementing fraud
policies. If Bailey, Carr & Co. can be of any assistance in
establishing a fraud policy for your organization, please do not hesitate to contact us.
