Introduction
Fraud involves any type of misconduct. Occupational fraud entails use of one’s professional position for an individual improvement or enrichment by way of deliberate misappropriation of the company’s assets or resources. Notably, it may entail subsistence fraud, travel fraud, payment fraud, exploitation of assets, and receipt fraud of procurement fraud. In addition, it is majorly committed by workers against employers. According to the Association of Certified Fraud Examiners (ACFE), over six percent of the U.S. Company’s revenue are misappropriated by employees. Occupational fraud is a financial wrongdoing ( Justice, Cohen, & Hermanson 2018) . Financial crime or wrongdoing entails wrongs committed and that leads to financial loss but does not involve any violence. Suh, Shim, and Button (2018) argue that i t is actually a theft by way of a pen and not a firing arm. It is different from organizational crime or white collar crime in which personnel wearing white collar partake in conducts of violence and may not be restricted to a given area. Occupational fraud targets a company or organization. The focus of this paper is occupational fraud prevalent and continually rising within business organizations. Occupational fraud remains a threat to the well-being and growth of business globally with the rising cost threatening the existence of big and small business enterprises.
Body
According to Ocansey (2017) t here are four types of occupational fraud. Understanding and coming to terms with the types of fraud is the first step towards preventing and reducing the rate of fraud within an organization. Occupational fraud can be categorized into four;
Delegate your assignment to our experts and they will do the rest.
Asset Misappropriation
Corruption
Embezzlement
Financial Statement Fraud
According to the Association of Certified Fraud Examiners (ACFE) asset misappropriation and corruption are the most prevalent types of occupational fraud. At the same time, they are quite costly. Justice et al., (2018) points that asset misappropriations involve a worker misusing or stealing an organizations billing, resources, and inflation of expenses. They include check payment, reimbursement, and payment tampering, payroll, and cash larceny. According to Suh et al., (2018) misappropriation of assets can further be divided into non-cash and cash. Cash misappropriations involve cash at hand while non-cash involve cash receipts, fraudulent disbursements, and theft of inventory.
Corruption entails and often involves senior managers and is a type of fraud in which employees influence or misuse a financial transaction directly or indirectly. In the case of financial statement fraud, entails tampering with financial records for personal gain for example inflation of figures or addition of non-existent expenses ( Nawawi & Salin 2018) . According to Justice et al., (2018) , fraudulent financial porting takes place if financial statements are modified by way of fictions reporting, concealing assets and liabilities, wrong records o expenses and revenue among others. Suh et al., (2018) maintain that embezzlement is a common type of occupational fraud in which an employee manipulates or changes accounting records with the intent of stealing funds ( Ocansey 2017) . For example, conniving employees may come up with sophisticated strategies of siphoning money from the organization by way of devising a scheme that is difficult to detect. This is also referred to as misrepresentation and is a strong element of fraud.
Corruption schemes may take the form of abuse of power, misuse of office time, and pilferage. Other forms of corruption entail illegal gratuities, bribery, and conflicts of interest. According to Suh et al., (2018) abuse of power involves undertaking unsuitable accounting decision with the objective of benefiting oneself of a group of employees within the company or organization. For example, a staff member signs an agreement with more dealers thus receiving a kickback. Kickbacks entail a type of corruption and abuse of one’s privileges within the organization. Misuse of office time entails taking up business hours to undertake unrelated tasks ( Justice et al., 2018) . This deprives the organization a workers productivity thus lowering input and financial benefits. At the same time, running a private business within the organization steals organizational time thus denying the organization employee productivity.
Costs and Red Flags
Costs
The recent report by the Association of Certified Fraud Examiners indicates that there is a rising and growing alarm of occupational fraud coming with massive costs. The increasing cases are touching on every industry and field from Europe, Canada, the United States, Middle East, Asia, and Africa (Suh et al 2018). The organization estimates that over five percent of yearly proceeds are lost due to occupational fraud with numerous cares going undetected thus the actual cost is unknown. However, Justice et al., (2018) state that the organizations 2016 annual report indicated that over $6.3 billion are recorded in damages globally from research on 2,410 business organization. At the same time, the total loss is projected at more than $3.7 trillion ( Nawawi & Salin 2018) . Asset misappropriation takes up approximately 80 percent of the cases with the median loss at around $125000. In the case of financial fraud that constitutes 10 percent the effect on the company is large with an average loss of approximately $1 million ( Justice et al., 2018) . The size of the loss is majorly determined by if and when the executives are involved in the fraud; time is taken to plan the scheme and type of concealment involved. It is thus critical to come up with mitigation measures to reduce organizational loss as a result of occupational fraud.
Red Flags
Majority of occupational fraud are self-initiated and motived. In over 80 percent of occupational fraud, perpetrators have often displayed more than one social red flag. They include; living beyond one's means, financial difficulties, control issues, wheeler-dealer challenges, addiction problems, past legal challenges, instability in life issues, excessive pressure from the company, and irritability (Suh et al., 2018). Others include suspicious behaviors, defensiveness, peer pressure, close relations to dealers and vendors, refusal to take holidays or vacations; family challenges, and complaints of insufficient pay ( Justice et al., 2018) . Other red flags that may perpetuate occupational fraud include sham subsidiary organizations, previous complaints, organizational due diligence, conflicts of interest, sloppiness, and non-standard documentation. Nawawi & Salin (2018) elaborates that t hese red flags can often be picked by keen auditors, managers, and subordinates. The frequency of the behaviors often points to heightened fraudulent behaviors that may point to chances or possibilities of engaging in the same.
Common Schemes
Often perpetrators use more than one or two tactics and schemes to undertake a fraud. They include skimming; check tampering, billing, expense/payroll reimbursements.
Billing Schemes
These include falsified invoices, use of shell companies, and false purchase orders. Others include incorrect payments or misappropriate use of credit cards ( Ocansey 2017)
Check Tampering
Entails concealing of checks, forged documents, changing of payee names and modification of check face.
Skimming
Examples include understated revenues, unrecorded sales figures, stolen and falsified accounts.
Payroll/Expense Reimbursements
Includes overstated checks or documents that include reports, expense sheets, and continued payments to non-existent employees or ghost employees.
Internal auditor’s fraud related responsibilities and Obstacles
Despite controversial position of the internal auditor in fraud risk management has come under sharp scrutiny and criticism, they still occupy a critical position of investigating and having in place measures aimed at reducing occupational fraud. The primary role of the internal audit as far as occupational fraud is concerned entails;
Putting appropriate measures of evaluating all control methodologies in addition to determining required processes and procedures to stopping fraud within the organization.
The internal audit has the primary role of offering adequate skills and knowledge to the determination of fraud and putting into place fraud detection measures ( Justice et al., 2018) .
The internal audit also has the responsibility of taking appropriate actions toward investigating under occupational fraud case.
At the same time the internal audit has the primary role of whistle-blowing in the case of detecting a fraud (Suh et al., 2018).
Finally, the internal audit is expected to provide necessary response and investigation upon discovery of an occupational fraud.
Issues affecting Fraud
Fraud is no doubt a serious crime. Over the years, serious campaigns have been mounted to create awareness on the prevention of fraud among employees and in organizations. However, lack of funding has led to poor penetration of the same within the global business environment. According to Justice et al., (2018) some of the issues affecting fraud currently include data protection laws, digital transformation, stopping fraud from the beginning, and limited resources preventing proper anti-fraud campaigns. Suh et al., (2018) point that another critical issue includes setting up a counter fraud policy that starts from the top. For example, establishing fraud governance is a critical issue towards the prevention of the same in organizations.
Conclusion
Notably, it is no doubt that occupational fraud is taking a toll on organizations with massive losses and remains a threat to the survival of business enterprises. Appropriate measures are thus critical in countering the continued rise of occupational fraud. One of the most important concepts is the cultivation of anti-fraud culture within the organization. According to the Association of Certified Fraud Examiners (ACFE), being knowledgeable about occupational fraud is the first step of reducing or stopping the vice. With the rising cost of occupational fraud in organizations, it is important for countries to enact and put in place legislation that promote awareness creation of the same within organizational setting and business enterprises. Employees should also be put on alert to help identify the red flags among colleagues in order to prevent prevalent acts of fraud within the organizations.
References
Justice, S. E., Cohen, J. R., & Hermanson, D. R. (2018). Star Employee Occupational Fraud: Treatment and Subsequent Effects. Journal of Forensic and Inverstigative Accounting , 10 (3), 294.
Nawawi, A., & Salin, A. S. A. P. (2018). Internal control and employees’ occupational fraud on expenditure claims. Journal of Financial Crime , 25 (3), 891-906.
Ocansey, E. O. (2017). The role of corporate culture in managing occupational fraud. Organization , 8 (24).
Suh, J. B., Shim, H. S., & Button, M. (2018). Exploring the impact of organizational investment on occupational fraud: Mediating effects of ethical culture and monitoring control. International Journal of Law, Crime and Justice , 53 , 46-55.
