Avoiding occupational fraud during, after the holidays

12/15/2011 6:09 AM

08/08/2014 10:08 AM

Holiday parties, shopping for gifts, family get-togethers … this time of the year brings many good tidings.

But unfortunately for businesses, the holidays also typically cause a rise in “occupational fraud,” such as embezzling, theft and misuse of an organization’s resources. The Association for Certified Fraud Examiners’ (ACFE) 2010 report estimates the average organization loses 5 percent of its revenues annually to fraud, with small businesses most at risk.

Fraud occurs when three critical factors intersect: financial pressure, opportunity to commit a fraudulent act, and the rationalization to commit such an act. Since the economic downturn in 2008, many are already under financial pressure; the holiday traditions of travel, celebrations and gifts simply add fuel to an already hot fire.

Organizational safeguards, such as separation of financial duties and keeping valuables locked up, are likely already in place in fiscally responsible companies. What many companies overlook in helping prevent fraud is the most important element: the human factor.

Between now and February, when the holidays bills are hitting hardest, consider putting into practice some of these ways to combat fraud in the workplace.

•  Increase communication within the organization. Remind employees to be diligent in maintaining the financial controls that protect the organization and its employees from fraud. With vacations, holidays and sometimes a more relaxed office environment, normal controls may be more easily circumvented. Make sure employees know the same procedures remain in place, and if areas are short-handed, that they should relay any concerns to management.
•  Educate employees about the red flags that may signal fraud – such as employees living beyond their means or having financial difficulties – and outline the cost of fraud to everyone: One-third of small businesses fail because of some form of fraud.
•  Ask employees to help directly by suggesting ways the organization can better protect itself or by reporting any illegal or unethical activity they suspect or know of – ideally, through a way to allow employees to communicate anonymously. The ACFE reports employee tips are by far the most common way fraud is discovered, catching nearly three times as many fraud cases as any other form of detection.
•  Repeat these messages through multiple channels. Use companywide newsletters, meetings and other reminders to create an environment in which unethical behavior is not tolerated.
•  Offer employees help coping with financial pressures. For most of us, the holiday season is a time to enjoy and celebrate. But for some employees, it can be even more stressful because of family or financial issues. Even normally honest people can be pushed to the point of crisis. Emphasize an open-door policy to encourage employees with concerns to talk with their managers and seek any help they may need.

In addition, if your organization uses an Employee Assistance Program (EAP), remind people that it’s a resource for many problems, including financial and legal issues. Some EAPs also offer classes; you may be able to schedule an on-site speaker on holiday budgeting. EAPs are not only a great way to help employees deal with problems; they can also be a morale-booster.

These are appropriate messages to help prevent fraud at any time of the year, although they are more timely given the stress of holiday spending. As the economy shows sluggish signs of a gradual recovery, no organization can afford the extra drain of fraud, especially when low to no-cost ways of helping prevent it are as simple as communication.

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