8/20/2009 - Is Your Business Safe from Fraud?

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(Written by Dennis Blass, CFE, CPP, PSP, Director Quality Assurance, Security Engineers, Inc.) 

Fraud is one of the most pernicious problems facing organizations today and it is getting worse.  Recent economic problems, downsizing, layoffs and cutbacks are increasing the number of people dealing with unshareable problems (motive) and justification (rationalization).  Organizational changes to office staffs and modifications in payment systems have in many instances reduced or altered administrative controls that prevented or reduced the opportunities to commit thefts.  The result is increased exposure to fraud. 

The Association of Certified Fraud Examiners periodically publish a "Report to the Nation on Occupational Fraud and Abuse."  The last report was published in 2008.  Some of the findings include:

1. The median loss caused by occupational frauds in the study was $175,000.  More than 25% of the losses were at least 1$ million dollars.
2. Occupational fraud schemes frequently continued for years before being detected.
3. The most common frauds involved corruption and fraudulent billing.  
4. Occupational frauds are more likely to be detected from a tip than by audits, controls or other means.
5. The implantations of anti-fraud controls have a measurable impact on an organizations exposure to fraud.
6. Small businesses are especially vulnerable to occupational fraud.
7. Most occupational fraudsters are first time offenders.
8. The most common behavioral red flags were perpetrators living beyond their means or experiencing financial difficulties at the time of the frauds.

While many business owners worry about outside threats the truth is that insiders can hurt us the most.  Attorney and writer Jeffery Kluger said the following; "We pride ourselves on being the only species that understands the concept of risk, yet we have a confounding habit of worrying about mere possibilities while ignoring probabilities, building barricades against perceived dangers while leaving ourselves exposed to real ones."  Kluger was speaking on another matter but this thought applies to organizational risk. 

In the end perhaps the most important thing an organization can do to reduce the risk of organizational fraud is to make a clear and unequivocal policy stating what fraud is and that it will not be tolerated in the organization.  The Association of Certified Fraud Examiners has written a model policy.  We are attaching it to this article.  A policy lets employees know how executive management feels about occupational fraud and what they as an employee should do if they suspect that fraud is occurring. 

Security Engineers prides itself on doing more for our customers than others in our industry.    We hope this article stirs some thinking about the risk of occupational fraud and provides a possible solution.  If you feel you may have a problem and desire consultation, we can do that. 

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