Profile of an Occupational Fraudster
By Steven C. Swann, CFA, CFF, CFE, Manager
During tough economic times, the risk of fraud in business always rises. When employers cut back, employees may suffer reduced wages, lost jobs and increased financial pressures all around.
The risk of occupational fraud is typically highest among employees who either make payments to suppliers or receive payments from customers via cash or checks. Businesses cutting back in accounting staffing often have to reduce oversight of these vital functions, which increases the opportunity for potential fraud. Employees with the following profiles typically present the greatest risk:
- Those with too much control. Employees who can approve invoices for payment, cut and sign checks and prepare bank reconciliations can easily divert business funds for their personal use. Often, small businesses don’t have enough staff to adequately segregate these duties, and this is when oversight must be heightened. Knowing someone is looking over their shoulder greatly reduces employees’ willingness to commit fraud.
- Those whose personal financial situation has changed. Employees who have suffered a recent personal setback — such as a spouse being laid off or a mortgage foreclosure — can sometimes rationalize committing acts they may not have considered when times were better. Again, increased oversight can help mitigate the risk of fraud.
- Those living beyond their means. Employees who dress too well or drive expensive cars in relation to their pay scale may already be committing fraud. Note that while none of these necessarily suggest that fraud is being committed, they may indicate a heightened fraud risk. A tip from an employee, customer or vendor usually reveals occupational fraud.
Small businesses usually suffer the most from occupational fraud. The dollars lost may be less than in highly publicized cases, but the impact is usually greater. Improving your business processes and knowing your employees are essential to reducing fraud risk during tough economic times.
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To discuss how to prevent and detect fraud in your business, contact Steve Swann, manager, at 330.255.2457 or by email.