Occupational Fraud Checklist
November 16, 2021
By Amy Fitzgerald
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.