Occupational Fraud Checklist

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.