When we think of fraud, often big news-item stories
come to mind. Bernie Madoff's ponzi scheme, Ken Lay and Jeff
Skilling's 53-count trial regarding what they did at Enron, and the
like are the sorts of things that people often hear about. What they
don't hear about, however, are the millions of little frauds that
occur in business every day, and they're often less dramatic or and
much easier to detect if you know what you're looking for.
To begin, let us define an "occupational fraud" as a fraud that is
done quickly and easily within the company. They are, by definition,
internal in nature, which means that they are perpetuated by your
employees. This is not to suggest that you should distrust your
employees, but rather that you should be aware of the types of
things that may be happening and what signs to look for.
Occupational fraud includes things like check fraud, revenue
skimming, and false invoicing.
Usually an employee commits occupational fraud when four factors
exist: motive, means, opportunity, and rationalization. Motive, to
an extent, should be obvious, but is rarely the accumulation of
money in general. Often the motive involves something excessive in
some respect, such as outstanding debt, medical problems, or a
general inability to keep up with demanding financial times, which
has been largely the case these days. Means can be a highly varied
category, and can include everything from the ability to work
complex financial tricks to hide missing money to being able to
operate the cash register. Opportunity happens when there is a lack
of internal controls or misplaced trust. Finally, rationalization is
the last step, where an employee convinces themselves that they are
somehow right to be able to do this. Often the rationalization is
something along the lines of "I don't get paid enough for the work I
Occupational fraud can fall into one of two categories as well:
misappropriation of cash by employees and non-cash asset
misappropriation by employees. In simpler terms, taking money
directly, or taking items that haven't been paid for.
The former of the pair can take many forms such as simple larceny or
embezzlement (stealing money that has been recorded in some
respect), skimming (stealing unrecorded sales receipts), and phony
disbursements (check tampering, false bills, purchasing under false
names, etc.). The latter is more often seen as unauthorized use of
equipment, inventory shrinkage (stealing physical inventory), and
fake sales and/or purchases (pretending to sell items and then
absconding with them).
Fortunately, the solution is largely the same. Start by examining
your hiring practices and make sure that they're sensible and
thorough. Make sure to run background checks and hire people that
you think are responsible and stable. Also, place internal controls
on your business. Have money counts double-checked by multiple
employees, have inventory backup records, be positive that all sales
have to be recorded specifically, and don't relax these procedures
for any employee no matter how much you trust them since it only
sets an example for others. Finally, be prepared for the worst. If
you have a plan for dealing with occupational fraud, it won't be
able to do as much damage to your business.
If you have any questions about funding for your business ... or any
other business related questions ... then post your questions on the
home page here at
More Business Articles:
I Need the Internet?
Advice: Why Your Suppliers Want You to Succeed
Differences Between Angel Investors and Venture Capital
Getting Advertising Attention When Traditional Methods Don't Work
© 2008 - 2009 by EM Advisory Corp.
ABOUT US ::
CONTACT US ::