Fraud - What Kinds Do We Have At Work?

By: R W Cuthill Jr
Submitted: 2007-01-17 11:53:15
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According to the Association of Certified Fraud Examiners’ "Report To The Nation On Occupational Fraud And Abuse" (Report), “participants in the study estimate U.S. organizations lose 5% of their annual revenues to fraud. Applied to the estimated 2006 United States Gross Domestic Product, this 5% figure would translate to approximately $652 billion in fraud losses.” Of course these organizations must pass on this cost to consumers. This translates into each of us paying approximately 5% extra for fraud when we purchase a good or service. If the average household spends $40,000 for goods and services each year, their annual cost of fraud is $2,000.

Part of stopping occupation fraud is understanding it. The Report defines occupational fraud as, “The use of one’s occupation for personal enrichment through the deliberate misuse or misappropriation of the employing organization’s resources or assets.” We all know that people steal from their employers, even in very small amounts. Most of us at some time in our lives have taken home a few pencils, pads of paper, or perhaps some of the product sold by our employer. We also have heard about overstating of expense reports or the number of hours worked. These types of small frauds happen every day and cost us all billions of dollars each year. The Report breaks occupational fraud into three categories: asset misappropriation, corruption and fraudulent statements.

Asset misappropriation is the type of fraud we are most familiar with and includes the ones listed above. It is the largest type of occupational fraud in number, but not total amount. Corruption includes frauds such as bribery or conflicts of interest. Fraudulent statements generally include frauds relating to the organization’s accounting system and financial statements and are the largest type of occupational fraud by amount. Recent examples of fraudulent statements are Enron, Health South, World Com and other sensational frauds, which have been well publicized.

Occupational frauds are very hard to detect and most of them go undetected. According to the Report, the main detection tools are tips, accident, internal audit, external audit and notification by police. The Report points out that tips though anonymous hotlines is the most effective way of detecting occupational frauds. This means you are the one we count on to detect these frauds. When you are suspicious that a fraud may be happening in your workplace, do something about it. If your employer has a hotline, use it. If not, you can still provide an anonymous tip. Type out your suspicions and give it to a manager, who you do not believe is involved. You can mail it, put it in his in-box or use some other method, which will not identify you as the tipster.

What can you do to stop these frauds? Make sure you don’t commit them. This means the next time you need a few pencils at home, don’t take them from the office. You can buy them at the store and feel good about it when you do. This type of thinking, “I’m not hurting anyone”, only leads to encouraging others to do the same or it lets you rationalize that taking something more expensive is ok. You did not get caught taking the pencils, so take something more expensive next time. Secondly, when you are suspicious that a fraud may be happening, use the hotline. You don’t have to be sure. Someone skilled in investigating fraud will investigate and you won’t get your fellow employee in trouble, unless they deserve it. Thirdly, learn more about this type of fraud so you will know it when you see it. You are the main defense against occupational fraud.

Mr. Cuthill's practice is limited to court-appointed positions in large fraud cases. His work has produced the return of millions of dollars of investors' funds. For more information about him go to http://trusteeandexaminerCuthill.com.

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