Regardless of your company size or your industry, no organization is immune to internal and external threats. Fraud is a serious problem that has a real impact on the bottom line. According to the Association of Certified Fraud Examiners’ (ACFE) 2018 Report to the Nations Global Fraud Study, global organizations lose an estimated $4 trillion annually to fraud, and it can take an average of 16 months before you even know what’s happening.
Small and mid-sized businesses (SMBs) are more vulnerable to theft and deception than larger organizations because they often lack checks and balances. They are also more likely to have a higher degree of trust with their employees, therefore increasing their susceptibility to internal theft. Companies with fewer than 100 employees suffer the largest median fraud losses at $200,000 — nearly double that of companies with 100 or more employees. And, the effects of a fraud incident can be far more damaging to an SMB because of their limited resources.
Catch Me if You Can
Workplace fraud occurs when an employee engaged in some form of theft against their employer for personal gain. This type of fraud is perpetuated in a multitude of ways, including stealing funds or sensitive financial information, corruption, or fraudulent financial reporting. The most unnerving part of fraud within your business is that it can span all levels of the organization, and it is often committed by those you least expect. However, all fraudsters will display some form of “red flag”.
It’s important to get to know your employees personally and take note of suspicious behavior that could be an indication of fraud. Such behavior could be someone living beyond their means, appearing too good to be true, being unwilling to share work responsibilities, or taking an unusual amount of unplanned time off without a clear explanation.
In one recent example, an executive for the NBA’s Sacramento Kings siphoned off $13.4 million of team money to purchase beachfront real estate for himself. There was also a recent report of an IT worker who used employee and customer data to steal the identities of 8,000 individuals, opening fraudulent accounts to the tune of $3.5 million dollars.
The Collateral Damage of Fraud in the Workplace
Obviously, the direct financial loss a fraud incident can have on a business can be devastating to operations, but there’s also collateral damage. In the example of the IT worker, thousands of innocent people had their personal information compromised and identities stolen. That kind of violation can create severe mistrust and a loss of loyalty by employees and customers who have been affected, leading to damaged morale in the workplace as well as customer attrition.
Workplace fraud can also be contagious. If a fraudster’s coworker is struggling financially and sees their colleague getting away with theft or asset misappropriation, they are more likely to follow suit. This can create a snowball effect, leading to exponential damage to the business and its culture, while also negatively impacting other employees.
4 Tips for Combating Fraud
Fraud awareness and protection is an initiative that must be led from the top of the organization and then be woven into your company culture, starting with the people you hire. Follow these tips to better protect your business and employees from the consequences of workplace fraud.
- Set the Tone | From conducting pre-employment background checks to communicating how dishonest acts will be punished, it’s critical to create a significant mental hurdle for employees to overcome before they even consider committing fraud.
- Watch for Red Flags | The Association of Certified Fraud Examiners says internal schemers display at least one red flag, and 50 percent exhibited multiple signs, including living beyond their means, exhibiting an unusually close relationship with a vendor or customer, and being unwilling to share responsibilities in the workplace.
- Enforce Internal Controls | Establish a multi-person system of checks and balances for any areas where fraud could be committed. This is especially important in finance and accounting, payroll, and inventory management.
- Protect Your Workforce | Though it may be a minority of individuals who would commit fraud against their employer, their actions absolutely impact your workplace culture and other trustworthy employees. By providing identity theft protection as an employee benefit, workers will have a layer of defense and an avenue for recovery if their personal information were to be misused.