November 13, 2007

Occupational Fraud

Crown employee and New Bremen resident Robin Brandt gave club members an interesting presentation on occupational fraud.

She began by defining fraud as 'an intentional deception, misappropriation of an organization's assets or the manipulation of its financial data to the advantage of the perpetrator'.  Fraud include 4 key elements including that it is clandestine, it violates the perpetrator's fiduciary duties to the organization, it is intended for the direct or indirect benefit of the perpetrator and it costs the victimized organization revenues, assets or reserves.

She reports that U.S. organizations lose an estimated 5% of annual revenues to fraud. Based on the estimated GDP for 2006 – this percentage indicates $638 billion in losses.  She went on to cite a number of incidents of fraud that have been reported in our local area as noted in the press in recent months noting that fraud is not all that uncommon.

Robin noted that the average length of a fraud scheme is 18 months and that small businesses are the hardest to be hit.  The higher the position of trust equates to the greatest amounts of loss and fraud schemes are most often detected by a tip.  Opportunity, pressure and rationalization are three steps that typically lead to perpetration of a fraudulent scheme.

She offered tips for fraud prevention as follows: 1) accept that fraud is commonplace and can occur in any business, 2) adopt a trust but verify code, 3) identify any employees who may seem to be living beyond their obvious means, 4) understand how earnings expectations and incentive payments impact behavior, 5) conduct surprise audits and inventory counts, 6) look for fraud in your organization, 7) conduct pre-employment screenings, 8) pay attention to complaints, 9) review credit memos, voids, accounts receivable, and write-offs, 10) make approvals meaningful, 11) screen and monitor vendors, 12) assure that those responsible for handling cash and checks are not also responsible for bank reconciliation of the books.

Hosting Rotarian: Diane Gast