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Occupational Fraud Schemes Every Business Should Know

Kristy Carlton

While occupational fraud is fairly uncommon, according to the 2022 Occupational Fraud report from the Association of Certified Fraud Examiners, if it does happen it often takes 12 to 18 months to discover and can cost upwards of 5% of revenue if undetected. Because of this it is best for every business to know what it is, how it occurs, and what actions to take to minimize your risks.

Types of Occupational Fraud

The starting point to preventing occupational fraud is to understand the common approaches to theft:

  • Ghost employees. Typically, someone with access to your payroll creates a fake employee and assigns direct deposit information to a dummy account so they can secretly transfer the money into their own bank account.
  • Time thieves. This fraud is often hidden if employees are not working overtime. Sometimes multiple employees will team up to clock each other in earlier than when they arrive or later than when they depart for the day.
  • Shape-shifting commissions. In an attempt to bump up a commission payment or attain a quota, a sales contract is modified. Sometimes a booked sale is made larger than it is with a corresponding credit memo put in the system in a later period.
  • External swindlers. This popular scam often starts with a fraudster impersonating a company executive asking an employee with access to payroll data to provide sensitive information. These imposters can make the correspondence look very real by using company logos, signatures and email addresses.

What You Can do to Fight Occupational Fraud

Being aware of the threats is a start, but you also need to know how to stop them. Here are some tips to reduce your company’s occupational fraud risk:

  • Look for signs. Per the Occupational Fraud report, internal theft signals often include employees living beyond their means, employees with significant financial problems, and employees that are overly close to customers or vendors.
  • Create or enhance internal controls. Review your company’s internal controls. Separation of duties is key. Dual approvals of payroll, regular shifting of duties, separate payroll bank accounts, limited bank access and management oversight are all basic controls that should be in place.
  • Review payroll records. Designate someone outside of the payroll-processing department to periodically review the payroll records. Have this person review names, pay rates, and benefit accounts to verify that the total payroll is accurate and matches what was withdrawn from the business bank account.
  • Perform random internal audits. During an internal audit is when you can really get into the details to look for potential fraud. Conduct an in-depth review of the entire payroll system or select a random sample of dates and employees. Keep the timing of the audit under wraps to prevent giving someone the chance to cover up their misdeeds.
  • Ask your employees for help. A tip from an employee is how more than half of all business fraud cases are initially detected. Another one-third of tips came from customers, vendors, and other outside parties. So consider implementing some form of anti-fraud education that targets both employees as well as external parties.

Please contact us if you have questions about preventing occupational fraud.

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