As International Fraud Week continues, Fact Finder Forensics is committed to shining a light on fraud. We support weeks like this to call attention to a major problem affecting people and businesses domestically and abroad. When it comes to fraud, a little awareness goes a long way.
Today we are looking at common frauds that occur in the workplace, their tell-tale signs, and how to report workplace fraud. No matter your role, industry, or level of seniority—you can help the fight against fraud by knowing the common types of workplace fraud, recognizing the signs, and reporting it.
According to the ACFE’s 2022 report, the typical fraud can last up to 12 months and cost an average of $117,000. Industries with the most reports currently include: construction, real estate, transportation and warehousing, wholesale trade, and utilities. It most commonly occurs with employees working in operations, accounting, sales, and upper management.
Fraud takes many forms and can be difficult to detect. If businesses and employees alike aren’t diligent, the toll of this deception and theft can become considerable.
Payroll fraud, or corporate account fraud, occurs when someone exploits a business’s payroll system to steal money while appearing to pay someone for their labor. An employee with easy access to the payroll system has the means to commit this type of fraud. However, payroll fraud can be committed by anyone inside or outside the organization through extensive hacking. Examples of payroll fraud include:
Submitting false timesheets to pay themselves or someone else more than they earned
Padding work hours on timesheets
Issuing unauthorized bonuses
Sending money to a fake employee or ex-staff member
Financial Statement Fraud
Financial statement fraud occurs when corporations misrepresent or deceive investors into believing that they are more profitable than they actually are. This includes manipulating financial records to make their assets, income, or total net worth appear greater or painting their debts, liabilities, and losses to appear smaller. This type of fraud is commonly committed to secure loans or to avoid consequences for not reaching financial goals. Look out for:
Growing revenue without corresponding growth in cash flow
Consistent sales growth while competitors are struggling
Significant surge in company performance within the final reporting period of the fiscal year.
Asset misappropriation occurs when an employee takes or misuses company assets for their gain. This could include cash misappropriation (directly stealing money from the company) or non- cash misappropriation (stealing non-cash assets such as office supplies or inventory without authorization). Without proper controls, such as strong asset and inventory management, this type of fraud can happen over and over again. Examples of asset misappropriation include:
Transferring funds from company bank accounts
Making unauthorized purchases on a company card
Taking cash directly from a safe or skimming cash
Stealing inventory, supplies, or equipment
Corruption is a blanket term for several different types of business fraud. It essentially means when a person in power at a business deliberately mishandles funds or engages in any kind of dishonest behavior. Business owners or employees in powerful positions have the potential to become corrupt if they seek to make as much money as possible with little regard for justice or morality. Corrupt behaviors can include:
Making unreported transactions
Conducting business dealings with criminals.
Know the Signs
Why do people commit fraud? Most often, it boils down to financial pressure, rationalization, and opportunity. In particular, economic turmoil like we are experiencing today often leads to a rise in dishonesty and fraud. However, employees committing fraud will often exhibit tell-tale behaviors that business owners and employees should know. Here are some classic red flags for employee fraud:
Complain constantly, take shortcuts, and try to beat the system
Irritable, secretive, suspicious
Hoard information and won’t relinquish a duty
Living beyond means
Working longs hours without taking leave or holiday
Experiencing financial difficulties, gambling debt, or substance abuse
Every employee, regardless of position, can help prevent fraud. Now that you have learned some common types of workplace fraud, you can remain vigilant. While a majority of employees are honest, if you observe something that isn’t right, it may be necessary to take action. As an employee, here is what you can do to report fraud:
If available, use your company hotline to anonymously report wrongdoing.
If applicable, write an anonymous letter to your organization’s internal audit team or anti fraud team.
If the allegation involves top management, anonymously report it to the board of
directors or the board’s audit committee.
Or go directly to the SEC Office of the Whistleblower and submit a tip at https://www.sec.gov/whistleblower/submit-a-tip
Business owners and employees are the first line of defense against fraud. Every person can fight against fraud and protect their workplace. However, in a post-COVID setting, employee negligence is the number one threat to corporate fraud. Why? Many employees are unhappy with the return to the office setting and have little interest in protecting their employer’s interests, especially if the preventative tasks are tedious.
It is incredibly important for everyone in an organization to be well-versed in workplace fraud, the signs to look for, and the preventative measures needed to thwart it. Make sure your employees know the signs of fraud and understand the policies and repercussions of committing fraud. Inform them of easy, anonymous ways to report malpractice and consistently reward ethical behavior.
Check back with Fact Finder Forensics this week as we continue to discuss fraud and promote anti fraud readiness.