Occupational fraud is a type of fraud committed by employees against employers. Occupational fraud causes billions of dollars of losses for US employers each year. In short, occupational fraud encompasses any type of fraud that an employee commits that somehow utilizes his or her role or employment as a factor for personal gain in a way that is an inappropriate use of the organization’s property, assets, or other resources.
The Association of Certified Fraud Examiners (ACFE) puts together a report that outlines fraud across businesses big and small across the country[i]. They note that fraud occurs across multiple areas:
- Stealing or otherwise misusing company property. ACFE calls this category “asset misappropriations.” This could be as straightforward as stealing cash or supplies from the company, or using company resources for personal use or gain. Or it may be more involved, such as hiding extra (personal) purchases with real company purchases on a company credit card, for example. Or it could involve making fraudulent reimbursement or other claims for payments that an employee is not actually owed. (These are just examples—not a comprehensive list.) This type of fraud is the most prevalent type of occupational fraud, but each instance is typically not as costly as the other types.
- The next type of occupational fraud involves corruption. This may take the form of getting some form of personal gain, like kickbacks or other benefits, in exchange for some business benefit the employee confers, such as awarding a contract. It should be noted that not all personal gains would necessarily be fraudulent or corrupt; it becomes problematic when the decision taken is contrary to what the employer would have otherwise done without the kickback or other benefit on the line. Bribery is problematic; but thank-you gifts may not be. Just as we noted above, these are just examples—there are many more. This type of occupational fraud is likely to be perpetrated by someone in a managerial position or other position of authority.
- Misrepresenting the company in legal or financial matters, such as falsifying documents or accounting records. This may even be done for company benefit, but it’s still fraud. This category is known as “fraudulent financial reporting” in the ACFE report. This type of occupational fraud can cost companies a lot, and have repercussions for years.
Employers need to be aware that employees at any level of the organization may be capable of fraud. And an employee may commit fraud against his or her employer without committing any other type of illegal or unethical activity outside of their work life, making it difficult to spot someone who may commit occupational fraud before hiring them—which is an important distinction for HR team members to know.
Occupational fraud exists across industries, across demographics, and across departments. Virtually no organization is immune. That said, smaller businesses may be even more at risk than larger ones, simply because they have fewer resources to dedicate to finding and eliminating fraud in the first place, so it’s much easier to get away with and more likely to result in high losses for the organization.
In part 2 of this article, we take a look at some of the ways organizations can combat occupational fraud.