United States: OCCUPATIONAL FRAUD: The Hidden Disease In Your Organization

Last Updated: July 19 2016
Article by Jerry B. Murray

Occupational Fraud is considered a "growth industry" and here's why all organizations are at risk.

While you are good at managing your personal health risks, when was the last time you gave your organization's financial health risks equal consideration?

If your answer is never or not lately.....then by all means read on.

What is Occupation Fraud?

The term "occupational fraud," commonly referred to as embezzlement or employee theft, is generally used to encompass the full range of willful misuse of company assets by employees. Said differently, it's when someone deliberately misappropriates or misuses company assets for personal benefit.

Occupational fraud is difficult to detect and, like an iceberg, you only see the fraud that has been detected. Most frauds go undetected for long periods of time and are usually discovered through tips or by accident.

How serious and widespread is Occupational Fraud?

Here are some selected highlights from recent survey results of 2,000 fraud cases prepared by the Association of Certified Fraud Examiners in their annual Occupational Fraud Study:

  • Organizations lost an average of 5% of their annual revenue to occupational fraud each year.
  • Average loss per fraud case was $2.7 million, with a median loss of $150,000 per case
  • Median duration of the fraud was 18 months and the longer the fraud went undetected the greater the loss.85% of the fraud perpetrators ("fraudsters") were first-time offenders with no past history of fraud.
  • 75% of the fraudsters worked in key departments (e.g. accounting, operations, sales, purchasing).
  • 79% of the fraudsters displayed behavioral warning signs when they were engaged in their crimes.
  • Most common forms of occupational fraud were asset misappropriation, billing schemes and check tampering.
  • Most common form of detection of occupational fraud was tips from either inside or outside of the organization.
  • Most common cause of occupational fraud was lack of internal controls and/or no effective anti-fraud program.

The "Silver Bullet"

Sorry to give you false hope but there is no "silver bullet" for preventing or detecting occupational fraud 100% of the time.

You may have heard of the "Fraud Triangle" which is a buzzword for the three key elements necessary for occupational fraud to occur. The three key elements of Motive, Opportunity and Rationalization, can be briefly explained as follows:

  • Motivation is the pressure point that drives someone to cross the line. Think about what motivated you when you were twenty years old versus what motivates you today? Motivation is a personal decision, so your organization has very little, if any, control over what motivates an employee or a third-party like a supplier.
  • Opportunity is the ability to initiate, execute and conceal an improper transaction. This is the one element of the fraud triangle your organization can exercise control over. We'll discuss this further in the next section below.
  • Rationalization is the moral breakdown that generally has to occur for an employee to cross the line. Again, your organization probably has very little, if any, control over someone's rationalization of a wrong-doing.

For occupational fraud to occur in your organization, all of these elements must be present.


As noted above, your organization cannot control an employee's moral compass or motivation. However, opportunity is the element of the fraud triangle that your organization can exercise a large degree of control over and thereby mitigate risk.

You can dramatically increase your odds of preventing or detecting occupational fraud in your organization through a robust anti-fraud program.

Your anti-fraud program should consist of three primary areas:

  • Risk Assessment which is akin to building the foundation of your organization's anti-fraud house by carefully identifying and analyzing the classic "who, what, when, where and how could $$$ things go wrong." In other words, follow the money.
  • Risk Response which is akin to building the walls around your anti-fraud house. You build on the Risk Assessment foundation by responding to the identified risks through the design and implementation of internal controls that provide the necessary checks and balances designed to either prevent or detect fraud in a timely manner.

    Establish a perception of detection among employees and vendors by communicating your internal controls, policies and procedures, testing the controls and stressing the importance of compliance.
  • Monitoring which is the roof of your anti-fraud house. Effective anti-fraud communications and training of all employees is essential. And because a large portion of frauds come from tips, establishing a fraud reporting mechanism such as anonymous fraud reporting via phone, email or website is a key actionable item.

The tone from the top must be consistent with the actions of leadership.


Although the complete elimination of the occupational fraud risk to your organization is not possible, you can take tangible steps to mitigate the risks.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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