Unfortunately, both small-to-medium and enterprise businesses are prone to fraud and the 2018 Global Study on Occupational Fraud and Abuse dives deeper into the reasons why. The study looked at over 2,000 cases of occupational fraud reported over the previous two years, in 125 countries and in 23 industries. The most common fraud scheme was corruption among the executives and employees within an organization. Surprisingly, a few simple practices could minimize the risk of fraudulent activities.

Here are best practices for businesses of all sizes to reduce occupational fraud.

Discourage Fraud in the Workplace with Best Practices

Set the Tone At the Top

Executives and business owners have the power to reduce the potential of occupational fraud. Employees will follow the lead of executives and those who run the organization. If the message from the top down is honesty and integrity, that will flow to the lower ranks of the business.  Managers should have anti-fraud training and a code of conduct to help build trust among employees.

Internal Controls

Most fraud was committed through misappropriation of assets, according to the Association of Certified Fraud Examiner's report. Corruption and financial fraud followed closely behind.  In many cases, the fraud was committed by those in a position of authority. Even if an employee is privy to fraud within the business, they need some way to report it. Tips are the number one way that fraudulent activity is detected. A report or tip hotline can affect the outcome of the case and how quickly it can be resolved. Other internal controls include third-party audits and rewards for whistle-blowers.

Background Checks

Another interesting revelation in the report is how background checks affected the risk of fraud. Of the 2, 690 cases reviewed,  only 52% of the organizations ran background checks. 10% of those who did run background checks were alerted of previous fraudulent activity from the applicant but hired them anyway.  The organizations relied on employment history and criminal background checks to determine hiring status.

When looking closer at the overall picture of a fraud perpetrator, however, it appears that the typical applicant who eventually commits fraud has no prior history of convictions. Only 4% of perpetrators in the report had a criminal history meaning that most were likely first-time offenders.  Then again, the report also revealed that between 58 - 69% of occupational fraud studies never included law enforcement.  

Most fraud perpetrators are not punished for their activities. They either kept working for the organization, resigned or settled with their employer.  In that case,  background checks will not reveal previous criminal activity because they were never prosecuted.

Prosecute Fraudsters

Hiring managers would like to weed out any potential employees who have been involved in corruption or fraudulent activities. Unfortunately, background checks may not reveal that applicants have a history of fraud from their previous employers. The reason for this is that many employers are embarrassed or simply unwilling to convict those who've committed fraud within their organization.  Even with fraud detected on background checks, organizations hired the applicants anyway.  A very important way to end fraud, within your organization or another, is to prosecute those who perpetuate occupational fraud. Otherwise, review the red flags and other characteristics of a fraud perpetrator found in the report and take all necessary precautions for your business. If you're a business owner, reducing risk starts with you.