Occupational fraud refers to a fraud committed by an employee, against his or her employer. It is defined as the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organisations resources or assets.

There are 3 main types of occupation fraud.

• Asset Misappropriation – This is associated with an employee stealing or misusing business resources and is by far the most common type of fraud perpetrated against a business. Examples of asset misappropriation include cash theft, fraud disbursements and misappropriation of businesses inventory and other assets.

• Financial Statement Fraud – When an employee purposely causes a material misstatement or intended omission in a business’s financial statements. This is the least common type of occupational fraud but the most damaging in financial terms. Types of financial statement fraud can include fraud relating to the overstating of a company’s revenues/assets making it appear more profitable than it really is. Conversely, this may also likely include the concealment of a company’s liabilities and expenses.

• Corruption – This includes offences mainly associated with bribery, extortion, conflicts of interest. Types of Corruption can include procurement rigging and kickbacks.

Occupational fraud imposes tremendous costs upon businesses around the globe. Despite having highly intelligent and sophisticated fraud detection measures in place, many businesses still fall foul of occupational fraud. Estimations from the Association of Certified Fraud Examiners (ACFE), suggest that businesses lose around 5% of their revenue each year due to fraud. In monetary terms, the ACFE estimate that this would equate to losses of more than $3.8 billion each year.

An important challenge facing organisations is ensuring that they have measures in place to quickly identify occupational fraud. The speed by which frauds are detected will have a significant impact on the size of the fraud in their business.

As most fraud experts will testify, the key to effective detection of occupational fraud is knowing the most common methods by which fraud is identified.

The ACFE - Report to the Nations 2020, highlights that the most effective tool in identifying occupation fraud found in businesses is a whistleblowing system. The report, widely acknowledged as the most quoted source of occupational fraud around the globe, found that more than 40% of cases were uncovered as a result of whistleblowing.

This continues a trend seen over the years from the ACFE which regularly produces findings from Certified Fraud Examiners and is based on 1000’s of reported fraud cases around the globe. The report concluded that the rate of detection by whistleblowing is nearly 3 times as high than any other detection method.

One of the most important areas in mitigating the threats of occupational fraud is for businesses to maintain a hotline or reporting mechanism which will speed up fraud detection and reduce losses.

Source: Report to the Nations on Occupational Fraud and Abuse, 2020, Association of Certified Fraud Examiners

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