The evidence is that organizational fraud occurs at a startling rate and at great cost. Fraudsters can occupy positions at any level and in any kind of organization, finding creative ways to enrich themselves at the expense of the organization. Owners, managers, and employees who dismiss or minimize the chances of fraud occurring in their workplace do so at their financial peril.

The hard truth about organizational fraud is that new fraudsters emerge every minute. They are not born that way—need, self-serving justifications, and opportunity can turn a trustworthy employee into a thief without warning. Situations such as addictions, family troubles or financial pressures can help to create the circumstances that might trigger fraudulent behavior in someone who wouldn’t normally commit fraud.

In other words, the most salient fact about fraud is that it is a highly probable event given enough time for a would-be fraudster to find opportunities somewhere in the organizational environment. Fraud is as constant as human nature.

You Cannot Eliminate Fraud, But You Can Manage It

Given the continuous emergence of new fraudsters, it’s easy to understand when some organizational managers throw up their hands in defeat. But the risk of fraud can be managed just like any other risk. In a column on this topic, the Economist summed it up:

Fraud by wayward employees, be they high or low, can never be eliminated. Directors and executives can, however, treat it like any other unavoidable risk, and manage it professionally. … Continue reading

Organizational fraud is a hidden crime. But when it is detected, it is often by a colleague or employee of the perpetrator who happens to discover the fraud – over 40% of the initial detection of a fraud is through a tip, most often from an employee. That’s why the ACFE Fraud Prevention Checkup highlights the necessity of a fraud reporting mechanism, in other words, a whistle-blower program.

An effective whistle-blower program has to both encourage the person who discovers the crime to report it and give him the means to do so. A potential whistle-blower may be someone who works closely with the perpetrator, with bonds of friendship or fears of retribution. The program needs to overcome these barriers to be effective.

In fact, research by the law firm Labaton Sucharow reported in Security Magazine in an article by Jim Ratley found that 34% of employees have learned about “workplace misconduct” and that most of them would report it if they could. The factors that could encourage them to report the issues included remaining anonymous, avoiding retaliation, and getting a reward. … Continue reading

Most managers, and in fact employees at all levels, assume their co-workers are honest and working to do their best for the organization. Unless they are the one who is perpetrating a fraud.

Unfortunately, occupational fraud is a lot more common than most people think. The Association of Certified Fraud Examiners (ACFE) has published a series of reports based on fraud examiners’ actual cases that document the pervasiveness of these hidden crimes. The 2014 edition of the Report to the Nations on Occupational Fraud and Abuse confirms that fraudsters steal 5% of top line revenue every year, which amounts to over $650 billion per year in the U.S. alone, and an astonishing $3.7 trillion worldwide. … Continue reading

This week is International Fraud Awareness Week, a global effort led by the Association of Certified Fraud Examiners (ACFE) to minimize the impact of fraud by promoting anti-fraud awareness and education.

We are proud to be among almost 1,000 organizations supporting this effort through the publication and distribution of educational materials that can help managers identify fraud risks and develop mitigation programs. This week we will feature fraud prevention-related content on our blog and we have issued a special edition of The Risk Mitigator. We are also proud to announce the release of our visual guide, 10 Fraud Facts. The guide highlights 10 facts about fraud from the ACFE’s 2014 report and offer tips to help your organization develop an effective fraud prevention program. Get your copy here.

Awareness of the potential for organizational fraud is the first step toward prevention. Yet a surprising number of organizations have no systematic fraud detection and prevention policies in place, leaving them more vulnerable to this hidden crime than they need to be. … Continue reading

If you are like many business owners and managers, you are certain there are no fraud problems in your organization. Are you really sure?

Every two years, the Association of Certified Fraud Examiners (ACFE) publishes a new version of their “Report to the Nations” (here’s the 2014 version) on the incidence and costs of organizational fraud. In every report they find that about 5% of top line revenue is lost worldwide to thefts by employees, owners, or partners with access to an organization’s resources.

The aggregate monetary cost of these losses is staggering, and does not even estimate the on-going costs of damages to reputation. ALL types of organization are vulnerable, and ALL types of employees and owners perpetrate these thefts. The only distinctive pattern in the data year after year is that fraud is a ubiquitous problem.

And yet, we often find organizations that have no preventative measures in place against fraud, and take no effective actions to detect it. This complacency is a common human trait: if nothing has happened in the past, nothing is going to happen in the future. Predicting the future based on historic patterns is a powerful tool, and it is often accurate. … Continue reading