With Fraud Running Rampant, How HR Can Help Prevent It


By taking alert measures, human resources can play a major role to put a dent in the global epidemic of fraud in the workplace.

An authoritative study reveals more than $6.3 billion in actual losses from occupational fraud in 2,410 cases.

The median loss of in fraud cases was $150,000, according to the Association of Certified Fraud Examiners (ACFE) in 2016. Some larger organizations suffered from multiple cases of fraud.

ACFE says the actual fraud losses in the aggregate total in the trillions of dollars.

The typical company suffers a five percent loss in revenue.

Investigators say human resources can help in the fight against fraud with comprehensive pre-hiring background checks including senior managers, as well as being on guard for unusual behavior of workers and using other tactics.

HR managerFrom the most common to the least common, ACFE outlines three broad categories of fraud:

— “Asset misappropriation” such as stealing of cash, equipment and information which includes billing schemes, cash larceny, check tampering, false expenses, phony disbursements, and payroll fraud.

— “Corruption fraud” includes conflict of interest, and bribery and extortion.

— “Financial statement fraud.”

Executive fraud

Executives committed 18.9 percent of the fraud with a median loss of $703,000. They are able to evade controls more easily than other employees.

Managers were responsible for 35.8 percent with a median loss of $173,000.

Subordinates committed 40.9 percent for a median loss of $65,000.

Sixty-nine percent were male fraudsters with a median loss of $187,000. While women fraudsters accounted for a median loss of $100,000.

About half of the wrongdoers had been with their employers for more than five years. Their median loss was $240.000.

Fifty-five percent were between 31 and 45 years old. Those over 40 were accountable for a $250,000 median loss.

Sixty-one percent had a college degree or higher and committed a median loss of $207,000. Less educated fraudsters had a $100,000 median loss.

Early detection

HR can help prevent fraud by being on the lookout for six so-called red flags in behavior of the workforce.

Behavioral red flags include:

  1. Living beyond means – 45.8 percent of the cases
  2. Financial difficulties – 30 percent
  3. Unusually close relationships with vendors or customers – 20.1 percent
  4. Excessive control issues – 15.3 percent
  5. A “wheeler-dealer” attitude involving unscrupulous behavior – 15.3 percent
  6. Recent divorce or family problems – 13.4 percent

In addition to effective financial controls and extensive background checks, ACFE recommends fraud hotlines, job rotation, mandatory vacations, fraud training, and support programs.

From the Coach’s Corner, here are related resources:

Embezzlement: Guidelines to Uncover and Prevent it — Embezzlement is a widespread nightmare. Here are proven strategies to discover embezzlement, and to prevent from occurring.

Embezzlement Tips to Protect Your Nonprofit or Company Assets —  Embezzlement is a widespread nightmare in business and the public sector. If you surf the Internet using the key word, embezzlement, you’ll find seemingly countless headlines. Upper management commits 18 percent of fraud, according to the Association of Certified Fraud Examiners (ACFE) in 2010. ACFE also said accounting department employees commit 29 percent of fraud.

10 Unusual Prevention Tips to Effectively Fight Fraud — If you ever think you might be victimized by fraud, you probably are. Businesspeople are typically victimized by fraud in several ways. The causes will surprise you. Here are simple ways to prevent fraud.

Beware: Small Businesses Lose Trillions to Worker Fraud — Small companies are fleeced by an aggregate in the trillions of dollars from employee fraud — suggesting the need for financial controls.

HR — Avoid the 10 Most Common Background Screening Gaffes — In human resources, all background checks are not equal. It’s important to avoid the 10 most-common background-screening errors.

Risk Management in Hiring: Pre-Employment Screening Tips — Here are two questions about hiring: 1) what’s the biggest mistake companies make in hiring employees; and 2) what’s the biggest legal obstacle employers face in hiring? Here’s what to do about background screening

Best Management/HR Tips: Check References of Applicants — Even if you believe you’ve found an impeccable candidate, you must conduct precise reference checks. If you don’t, you risk paying a high price later.

Legal HR Issues? Best Practices in Workplace Investigations — As an employer, one of your biggest nightmares can be issues involving your employees. There can be many reasons to conduct an investigation. “Action expresses priorities,” said Mohandas Gandhi. So you should act quickly.

“The challenge for capitalism is that the things that breed trust also breed the environment for fraud.”

-James Surowiecki


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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.





Beware: Small Businesses Lose Trillions to Worker Fraud



Fraud is reaching epidemic proportions at small companies, which are fleeced by an aggregate $2.9 trillion. That’s the estimate in a 2011 study from the Association of Certified Fraud Examiners (ACFE).

ACFE reports the median loss is $150,000, or 5 percent of the annual revenue. Some 30 percent of the companies have 100 or fewer workers. To add insult to the proverbial injury for such businesses, 25 percent of the persons responsible for the fraud had been trusted employees for at least 10 years.

Credit and cash challenged employees in the  economy is partially attributed as a cause for the epic fraud numbers.

Unfortunately, some long-time employees seem to have a sense of entitlement when working at small companies that probably pay less than large firms.

Small companies are probably more trusting of workers and are likely less sophisticated in financial controls while being focused on marketing for survival.

ACFE indicates it takes a company about a year and a half before discovering the shortages. More than 85 percent of the perpetrators didn’t have records of committing fraud.

The fraud trend suggests the need for financial controls and insurance protection against losses. That means taking steps to prevent such opportunities among your accountant, bookkeeper, office manager, sales manager – anyone who might have access from your billing records to checking account.

It also means getting an outside participant to review your finances, and explaining your controls to your insurance company. Your insurer will likely have suggestions, and provide premium discounts as a result of your financial controls.

Yes, marketing and other issues are problematic in this economy, so stay focused on them, but secure your finances, too.

From the Coach’s Corner, as is the custom on these pages, we typically discuss the solutions to problems.

Here are resource links to actually prevent fraud:

Embezzlement Tips to Protect Your Nonprofit or Company Assets —  Embezzlement is a widespread nightmare in business and the public sector. If you surf the Internet using the key word, embezzlement, you’ll find seemingly countless headlines. Upper management commits 18 percent of fraud, according to the Association of Certified Fraud Examiners (ACFE) in 2010. ACFE also said accounting department employees commit 29 percent of fraud.

Liars and Cheats – Clues You’re Dealing with a ‘Pinocchio’ in Business — Italian writer Carlo Collodi probably had no idea what he was starting in 1883 when he wrote the children’s novel, The Adventures of Pinocchio. It was the story about a woodcarver who created a wooden puppet that wanted to become a real boy. Pinocchio’s short nose would grow longer whenever he told a lie.

The New Face of $1 Trillion in Cybercrime on Business – Account Takeovers, Credit Card Fraud — Business Web sites are facing an increasingly intense full-court press from cybercriminals – the aggregate cost of cybercrime annually, which includes prevention strategies, has exceeded $1 trillion. Large-scale data breaches are savagely victimizing new accounts while account takeover attempts and credit card fraud has doubled, according to a fraud-data study in June 2013 .

Strategies for Retailers to Prevent E-Commerce Fraud — Merchants are certainly aware of online fraud and 65 percent are trying to fight it, but their efforts aren’t working according to a study. The anti-fraud study was conducted by CardNotPresent.com and SignatureLink in 2012.

Identity Fraud Escalates in Smartphones, Social Media — Skyrocketing mobile malware threats amid widespread use of BYOD, bring your own devices, will lead to a $1.88 billion services market in 2013. That’s according to ABI Research. Cybercriminals are successfully attacking vulnerabilities in individual devices and networks to an ABI report.

11 Travel Tips – Save Money, Prevent against Cyber Theft, Fraud — The most vulnerable travelers are businesspeople. That’s because they have to use Internet and e-mail. They’re in danger expressly from vulnerabilities, such as from wirelessly accessible passports to using WIFI.

Security Steps for Your Mobile Device in Online Banking, Purchases — Almost 90 percent of Americans use a cell phone and more than 50 percent have smartphones, according to published reports. They also indicate 28 percent of smartphone owners use their devices for online banking.

“Trust, but verify.”

-Ronald Reagan


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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.




Seattle business consultant Terry Corbell provides high-performance management services and strategies.