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.

About Amy Fitzgerald

Amy Fitzgerald is a Manager in the Financial Advisory Services providing commercial litigation, financial investigations, intellectual property disputes, martial dissolutions, and business interruptions services.