Some $6.3 billion in total losses; nearly one-quarter of cases lost $1 million or more; with $150,000 medial loss per case.
These are just some of the alarming statistics revealed in the 2016 global fraud study, “Report to the Nations on Occupational Fraud and Abuse,” released by the Association of Certified Fraud Examiners.
Could this be your organization? Could you be losing money daily? The fraud report explained that in 91 percent of cases, there was one red flag indicating fraud. In 57 percent of the cases, two or more red flags were present.
What are these clues that an employee might be misappropriating your organization’s assets?
The Red Flags
The top indicator is employees who live beyond their means. Any behavior an employee engages in, such that their pay will not cover those expenses, is at risk for committing fraud. Addiction or gambling habits create financial pressures that may tempt employees to steal. Taking expensive vacations, driving luxury cars, and indulging in other expensive lifestyle habits may create an environment for fraud.
Employees who have unusually close associations with vendors or customers present another red flag. Pay attention to tales of weekend fun or trips with vendors or customers. Perhaps frequent dinners out with donors, vendors, or customers create opportunities for fraud.
Employees with a wheeler-dealer attitude involving shrewd or unscrupulous behavior committed fraud in more than 15 percent of cases.
Employees with control issues who were unwilling to share their duties were equally likely to commit fraud, also in more than 15 percent of the cases.
The fraud study noted that these top flags have been consistently present in all studies since 2008 when the data was first tracked.
The study examined the distribution of the flags based on the perpetrator’s level of authority. For example, while 38 percent of all employee fraudsters were undergoing financial difficulties, only 22 to 25 percent of those with a manager-level or higher were having financial trouble. Managers or executives were more likely to have a close association with vendors and customers and to display that wheeler-dealer attitude.
What Does This Mean for You?
As part of benevolent or service organizations, we’d like to believe in the greater good of everyone. For most employees, their personal integrity will stop them from stealing. But the facts in the study indicate that employees under financial pressure are tempted to steal.
Most fraudsters do not plan to get caught! People know they’re risking their careers, reputations, and freedom when they engage in misconduct. Increasing the likelihood that they will be caught is a pillar of fraud prevention.
For those who are thinking about crossing that line, knowing they might get caught is often deterrent enough. Have strong internal controls in place, and do not ignore or override those policies. If someone is caught, pursue consequences for that employee. Employees should know there is a zero tolerance for theft. The anti-fraud culture begins at the top.
To learn more, download our resource guide, “Internal Controls for Nonprofits: Best Practice Principles, Policies, and Procedures,” to protect your cause and your community.