Occupational Fraud Checklist
- Nov 16, 2021
While occupational fraud is not entirely preventable, there are certain things organizations can do to mitigate their losses:
- Be aware of what causes people to commit fraud; in order for fraud to occur, what is called the Fraud Triangle must be present:
- Motivation – the need for more money to pay bills, go on vacations, etc.
- Opportunity – lack of controls can provide perpetrators with the opportunity to steal and commit other types of fraud
- Rationalization – the mental process perpetrators go through to justify their crimes, i.e., “I’m the hardest working employee here so it’s okay if I dip into the jar.”
When all three of these are present, potential perpetrators are able to self-justify and commit their schemes.
- Be mindful of the presence of “red flags” that may indicate that fraud is being committed:
- Employees buying uncommon and expensive items and exhibiting lifestyles incongruous with compensation levels.
- Employees repeatedly refusing to take time off or change shifts.
- Employees repeatedly asking to work outside of regular business hours or sharing tasks with others.
- Employee behavioral changes.
- Employees being unusually close to vendors or other employees, particularly when paired with refusing to change hours.
- Management decisions driven by a single person without rationalization.
- Weak internal control environment, creating opportunity.
- Frequent changes in bank accounts.
- Frequent changes in auditors.
- Reluctance to cooperate with auditors.
- Missing documents.
- Irregular expense reimbursements.
- Suspicious financials.
What can you do to proactively limit, mitigate, or even prevent occupational fraud? Follow a few simple steps, including:
- Creating a positive work environment and tone from the top, encouraging employees to do their best but making it clear fraud will not be tolerated.
- Training both employees and management in anti-fraud to make it clear what constitutes fraud.
- Creating clear reporting methods, such as hotlines, web forms, or in-person formal reporting.
- Hiring strong internal and external auditors.
- Establishing a multi-step review process for financials to ensure one or more employee(s) cannot commit fraud via manipulation.
- Practicing diligent hiring, running background checks when applicable and watching potential employees for red flags described above.
- Trusting your gut and using common sense; if something feels off, it often is. If not, then it’s worth the peace of mind to go through a review process.
Occupational fraud can be daunting to think about and can cause a business great financial and emotional stress. By following these steps, organizations can protect their assets and create a positive working environment for all persons involved.
For more information on fraud detection and prevention, visit our fraud knowledge center, The Forensic File.
If you have any questions, we'd like to hear from you.
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