Employee Fraud

April 6, 2010 at 1:43 pm Leave a comment

Occupational fraud doesn’t just hit large organizations, and it’s often not easy to detect. In December 2009, Baltimore mayor Sheila Dixon made headlines when she was convicted of taking hundreds of dollars worth of gift cards meant for the city’s poor. Dixon allegedly solicited most of the cards from developers and used them to shop at stores such as Best Buy, Target and Old Navy. Hers was not an elaborate scheme of intrigue and complex embezzlement, but wrong nevertheless, especially given her position and the intended use of the funds.

U.S. organizations lose an estimated 7 percent of revenues to fraud each year, according to the Association of Certified Fraud Examiners (ACFE) 2008 Report to the Nation on Occupational Fraud & Abuse. The median loss was $175,000, the study found. It’s nearly impossible to gauge the true amount of fraud occurring at any time, in part because, by the nature of the crime, the perpetrators’ main goal is to conceal their actions.

Another issue that could mask reporting is the fact that even among those frauds that are uncovered, a large number are never reported to law enforcement authorities for fear of embarrassment or bad public relations, and the issue is dealt with quietly out of the public eye. Embezzlement can take many forms, such as outright theft of cash and diverting resources to pay personal expenses and then trying to hide them as legitimate vendor payments.

People in every industry have the capacity to commit fraud, but, those in accounting and upper management are most likely to do so. Most are first-time offenders, putting added importance on recruiting and hiring. Only 7 percent of those caught had prior convictions, and just 12 percent had been terminated previously by an employer for fraud-related conduct. Typically, the perpetrator has never been convicted or even charged with a crime, a background check will not reveal anything worrisome. There are some enduring myths about workplace fraud. One is that it always involves big schemes and should be easy to detect. Such is not the case. They typically start small and grow in scale and complexity as time passes and the thefts go undetected. Fraud is most prevalent in companies with fewer than 100 employees.

A persistent belief that fraud “won’t happen here because I only hire good people” or “I’d know if it was happening because I know my business so well.” But, it’s precisely because the embezzler is in a trusted position that he or she can take advantage of that trust.

Excerpted from December 2009 issue HR Magazine, various authors

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Entry filed under: Human Resources (HR). Tags: , , .

HRIS for a small (100 EEs) company? Bradley Creer, HR @ Property Solutions

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