Connect with us

Hi, what are you looking for?

The American GeniusThe American Genius

Business Finance

Study: financial fraud caught more by coworkers than audits

(Business Finance) Fraud at any sized company can hurt the bottom line, especially when it’s an employee swindling funds – so how do you spot this behavior?

fraud

fraud

Financial fraud is costly, but do audits solve the problem?

According to a recent study by the Association on Certified Fraud Examiners (ACFE), companies should focus their monitoring for employee fraud not just on audits, but through employee fraud hotlines.

For example, in finance departments, most misappropriation of funds occurs in the procurement, payment, and expens areas, and by analyzing transactions in the areas, the ACFE says business can test for a wide range of employee fraud schemes, conflicts of interest, and even bribery.

bar
The Association reports that many companies use external audits to seek out fraud, yet only 3.0 percent of the 1,438 fraud cases were caught by these types of audits. More than double that amount (7.0 percent) were discovered by accident rather than by external audit.

It appears that the most effective way to catch a corporate criminal is through employee fraud hotlines, according to the ACFE, as over 40 percent of all cases reported in the study were detected via tip, typically from employees within the organization being defrauded.

There are “red flags” that most fraud perpetrators display, which is likely the reason coworkers are their undoing. For example, ACFE notes that the most common behaviors among perpetrators were living beyond one’s means (43 percent), having financial difficulties (33 percent), maintaining an unusually close association with a vendor or customer (22 percent) and “exhibiting control issues with an unwillingness to share duties (21 percent),” all of which are easier to spot by someone sitting in the next office every day than a third party auditor.

Advertisement. Scroll to continue reading.

While anti-fraud controls are still useful, smaller businesses are vulnerable to fraud because these anti-fraud controls are often skipped, and smaller organizations actually have a slightly higher median loss from fraud cases ($154,000) compared with companies of all sizes, and those funds are less likely to be recovered from a small brand.

How to safeguard your brand

Although the ACFE promotes third party audits, anti-fraud controls and tools, the real gem in this study is that coworkers on the front line are the best way to sniff out fraud.

Whether your company has 10 or 10k people, offering a culture that allows for anonymous tips is critical to avoid being defrauded. Whether it is through meetings that you as a leader inform all team members to be on the lookout for the most common behaviors of a fraudulent employee, and that they are encouraged to come forward to report it, even if anonymously (tell them to send smoke signals or drop an anonymous handwritten note if they must).

Your company will be better for it, and you’ll hold on to more of your money.

fraud infographic

Advertisement. Scroll to continue reading.
Written By

Marti Trewe reports on business and technology news, chasing his passion for helping entrepreneurs and small businesses to stay well informed in the fast paced 140-character world. Marti rarely sleeps and thrives on reader news tips, especially about startups and big moves in leadership.

1 Comment

Leave a Reply

Your email address will not be published.

The
American Genius
news neatly in your inbox

Subscribe to our mailing list for news sent straight to your email inbox.

Advertisement

KEEP READING!

Opinion Editorials

(EDITORIAL) Societal pressure (and internal pressure) of perfectionism drives us to feel like a fraud, so how do we beat imposter syndrome?

Business Finance

(FINANCE) Many choose to freelance in order to escape the daily grind of working for an hourly wage. Why, then, should a freelancer charge...

Business Finance

(FINANCE) Freelancers who are not always promised a regular paycheck could benefit from staying on top of their finances. Here's our tips!

Business Finance

(FINANCE) Especially when just starting out, setting your freelance rate can be a complicated process. Here's 5 tips to help!

The American Genius is a strong news voice in the entrepreneur and tech world, offering meaningful, concise insight into emerging technologies, the digital economy, best practices, and a shifting business culture. We refuse to publish fluff, and our readers rely on us for inspiring action. Copyright © 2005-2022, The American Genius, LLC.