occupational fraud and abuse is real, but we would like to believe otherwise.
Organizations incur costs to produce and sell their products or services, these costs run the gamut: work, taxes, advertising, employment, raw materials, research and development, and, for alleged fraud and abuse . The latter expense of fraud and abuse, however, is fundamentally different from the first: The real cost of fraud and abuse is hidden, but is reflected in the profit and loss figures. The 2006 Report to the Nation on Occupational Fraud and Abuse estimates that U.S. organizations lose 5% of its annual revenue to fraud. Applied to the 2006 U.S. GDP estimate (Gross Domestic Product), this figure would translate into about 652 billion U.S. dollars in fraud losses. For closely held companies the average loss suffered by organizations with fewer than 100 employees to $ 190,000 per project.
This is an issue that most business owners and managers like to believe is not an expense for your business. Unfortunately, it is a real possibility unless one is diligent, aware of the possibilities and a guardian against the environment which promotes behaviors much less than desired.
You may wonder, "Why do you want to know about fraud and abuse in the workplace." The answer is that good people need to be alert and monitoring requires knowledge. My hope is that these articles will be informative. Me and some of my colleagues are studying and working to become a CFE (Certified Fraud Examiners) to support our customers through quality education and sound business controls. I hope that work will not experience any fraud or abuse in their business or career. Let's start.
What is occupational fraud and abuse?
Joseph T Wells, CFE CPA, defines "occupational fraud and abuse as "the use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization's resources or assets." This involves a wide variety of conduct by any person in an organization ranging from sophisticated investment swindles to petty theft. Common violations include asset misappropriation, fraudulent statements, corruption, pilferage, false overtime, using company property for personal benefits and payroll and sick time abuses. The first Report to the Nation on Occupational Fraud and Abuse, set forth in 1996, states, "The key is that activity (1) is clandestine, (2) violates the employee's fiduciary duties to the organization, (3) is committed for the purpose of direct or indirect financial benefit to the employee, and (4) costs the employing organization assets, revenues, or reserves."
Edward H Sutherland, a criminologist at Indian University (1883-1950), actually coined the phase "white collar crime" referring to the sharply pressed shirt collars found in the corporate world with their standard blue, red or black ties.