How to Avoid Occupational Fraud
As a business owner, you are well aware of the risks external threats pose to your organization. However, are you familiar with the concept of occupational fraud? With this type of fraud, your business faces financial repercussions, as well as significant damage to your reputation and relationships with clients and customers.
Many organizations cannot recover from the losses sustained through occupational fraud. Prevention and early detection are the best methods to limit fraudulent activity and ultimately strengthen your internal controls. If you suspect that your workplace is the victim of internal fraud, work with our experienced team at Hurren Sinclair MacIntyre LLP. We provide personalized accounting services in Ajax and the surrounding Durham Region.
3 Basic Types of Occupational FraudUnderstanding the types of fraud in the workplace is the first step to effective prevention. Read below to learn more about the 3 main types of occupational fraud and the steps you can take to put an end to this criminal act:
- Asset Misappropriation - This is the most common type of internal fraud and one of the easier schemes to execute. This type of fraud occurs often when the perpetrator is inadvertently given opportunities to commit the act. Examples include check forgery, payroll fraud, and theft of money, inventory, or services. Enforcing internal controls and practices such as a strong accounting system and separating bookkeeping functions can help deter this behaviour.
- Bribery or Corruption Fraud - These schemes make up about 30% of fraud incidences in the workplace. In this case, employees will use their position to benefit from a business transaction. Kickbacks, bribes to influence decision making, and manipulation of contracts are good examples. Employers should pay close attention to employee interactions with outside parties.
- Financial Statement Fraud - While this type of fraud occurs less frequently, it is the most financially damaging to your business. Examples include increasing year-end bonuses, favourable loan terms, and manipulation of stock prices. Anonymous fraud reporting plays an important role that can result in the early detection of these schemes.
Preventative Measures to Protect Your Business Against FraudBeing proactive and taking preventative measures are your organization’s best defence against occupational fraud. Here are a few steps you can take to minimize the chances of fraudulent activity in the workplace:
- Perform Employee Background Checks - Mandatory background checks could raise a red flag on potential employees who have previously committed an offence. Although most perpetrators are first-time offenders, they are more likely to be employees who have been with the company for many years and have gained the employer’s trust.
- Reinforce Code of Ethics - Set a strong ethical tone in the workplace. Highlight the importance of ethics and make it a predominant part of your company culture. Emphasize that fraudulent and other inappropriate conduct will not be tolerated.
- Provide Anti-Fraud Training - Employees should be able to identify warning signs of fraudulent behaviour such as living beyond your means, long hours spent at the office, or unusually close encounters with customers and vendors. These behaviours may not always indicate fraud but it is wise to exercise vigilance in these cases.
- Implement an Ethics Reporting System - Maintain an open-door policy and keep an open line of communication between employees. Implement a program that allows employees to anonymously report fraudulent activity. Fraud hotlines can reduce the amount of time it takes to detect fraud from 24 to 18 months and therefore, significantly lower your losses.
- Perform Security Audits - Surprise audits can create a notion of deception in the workplace and discourage any plans to commit fraud or stop an act already in progress. Work with forensic accountants and risk consultants who can also help to review and enforce fraud policies and controls.
Enhance Internal Controls with Hurren Sinclair MacIntyre LLP, Chartered Professional Accountants
With our accounting services in Ajax, you’ll be working with a team of experienced professionals to help you understand the potential threats and how to stay ahead of them. At Hurren Sinclair MacIntyre LLP, we provide technical and business skills to our clients for all your accounting and assurance needs. We can help you manage your finances and provide business advice in Whitby, Ajax, and Pickering to prevent and mitigate the effects of occupational fraud. Maintain the integrity of your business, prevent fraud, and keep your funds safe with our licensed accountants.