EMPLOYEE FRAUDS
PROJECT WORK- FAFD
TABLE OF CONTENTS
• Introduction
• What is fraud ?
• The Impact of fraudulent activities
• Example of fraud
• Strategies to minimize the risk of fraud
• What to do once fraud is detected
• Fraud studies
Introduction
• Employee fraud is more common than most businesses think. It can have differing impacts on the
success of a business. In the most serious of cases, employee fraud can lead to business failure and
destroyed careers.
• Misplaced trust, inadequate hiring and supervision policies, and a failure to implement strong internal
controls create an environment that is ripe for an employee to commit fraud. Employee fraud is
therefore about opportunity. Subsequently, businesses should take steps to reduce this opportunity.
• The following guide includes:
• an overview of fraud, including common examples of fraud
• examples of strategies to reduce the risk of fraud
• information on what to do when a fraud is detected.
• Businesses designing strategies to reduce the risk of fraud will have to balance their desire to minimize
such risks with the business needs. In other words, a business must avoid becoming so focused on
reducing the risk of fraud that it impairs the ability of the business to meet its commercial objectives.
What is fraud ?
• “Fraud is behavior that is deceptive, dishonest, corrupt or unethical. For fraud to exist there needs to be an
offender, a victim and an absence of control or safeguards.”
• Fraud is generally described in three categories:
• asset misappropriation
• fraudulent accounting and financial reporting
• corruption.
• Conversely, fraudulent activity is usually motivated by one or more of three main factors:
• pressures
• opportunity
• rationalization.
• Opportunity is the element that every business should be seeking to reduce.
The impact of fraudulent activities
• Where a business is a victim of a fraud, there is more at stake than just the
direct cost of the fraud. Other impacts to consider are:
– Staff morale can be affected as they feel a sense of betrayal that a colleague could do
such a thing and/or management allowed the fraud to occur.
– Good employees do not want to work for a business where fraud is widespread, not
investigated or not acted upon.
– The reputation of the business in the eyes of suppliers, customers, competitors, possible
employees and other business partners (for example banks) can be damaged.
– Businesses may become overly internally focused in response to a fraud.
– For individuals that supervised the fraudster, the fraud can impact their reputation and
therefore their career, particularly if the manager is in a financial role, as others will
expect that given their expertise, they should have prevented the fraud.
Example of fraud
• Examples of employee fraud include:
• creating “ghost” employees or not deleting ex-employee records and having the
salary of these “ghost” employees paid into the fraudster’s bank account
• creating bogus suppliers, with payment being made to the fraudster’s bank account
• creating bogus purchase orders of a bona fide supplier and substituting the
supplier’s bank account details with fraudster’s bank account details
• obtaining kickbacks or bribes from suppliers or contractors
• associates of the staff providing services to the business at inflated prices
• personal use of business resources
Strategies to minimize the risk of fraud
Strategy Strategy
Lead by example Create an organizational chart
Implement a comprehensive recruitment
Create a positive working environment policy
Monitor employee behavior
Have a policy manual
Implement supervisory processes
Create a code of conduct Perform regular accounting reconciliations
Separation of duties
Authorization controls Implement physical access controls
Implement a whistleblowing policy
Investigate every incident
Others
What to do once fraud is detected
• Step one: Stop the fraud continuing
• Step two: Collect the facts
• Step three: Discuss the issue with the employee
• Step Four: Report the fraud to the Police
The following is a guide to what information to give
to police when reporting the fraud
Details of employee Supply name, address, date of birth, contact phone numbers, email
who has committed and employment details, including start date, leave dates, vehicle
the fraud registration, passport details, license details.
Prepare a summary of events in chronological order that forms the
Summary of basis of your allegation. Include times, dates, places and any
allegations conversations or interaction with suspect regarding the allegation.
Evidence Include a brief description of the evidence that supports the events
described.
The following is a guide to what information to give
to police when reporting the fraud
Witnesses Provide details of any witnesses, including their name, address,
phone number and a brief summary of why this person is a
witness.
Document/exhibits Provide copies of documents or exhibits which support the
complaint. This may include, but is not limited to, banking
records, business records, receipts, contracts, invoices, internet
content, phone records and audit reports. Treat original
document with care as this may be used as evidence.
Action taken Provide information of any discipline or civil action taken
against suspect against the suspect/s.
Fraud Studies
• Fraud Study one: Wholesale distributor with national network
• Fraud Study two: Telecommunications business
You Can’t take broken processes,
ineffective processes and poor
internal controls and just throw
them away onto a new financial
system and expect success.
Eugene Schied
THANKS
