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February 19, 2010

HR Fact Friday: Fraud by Employees Common

Occupational fraud might be more common than many HR professionals suspect, and some experts argue that the economic downturn might be leading more people to commit fraud because they are facing mounting financial pressure on the home front.

U.S. organizations lose an estimated 7% of revenues to fraud each year, according to the Association of Certified Fraud Examiners’ (ACFE) 2008 Report to the Nation on Occupational Fraud & Abuse. The largest cases occurred in manufacturing, banking and insurance, respectively. The median loss was $175,000, researchers found.

Embezzlement takes many forms, such as stealing cash or diverting resources to pay personal expenses and then trying to hide them as legitimate vendor payments, noted Hubert Klein, a partner at Amper, Politziner & Mattia in Hackensack, NJ.

People in every industry have the capacity to commit fraud, but, according to the ACFE, those in accounting and upper management are most likely to do so. Most are first-time offenders: Only 7% of those caught had prior convictions, and just 12% had been terminated previously by an employer for fraud-related conduct, the researchers found.

Adopt internal controls, a monitoring program and a formal process for investigating anomalies to reduce the risk of fraud. Other recommendations include consulting with an attorney(s) and accountants to set up best practices internal audits and review the organizational structure and controls to make sure employees “aren’t using their expense accounts to pilfer.” Also watch for jobs with troublesome overlapping responsibilities, such as where one person is responsible for paying bills and reconciling bank statements.

Source: HR Magazine, Pamela Babcock, 2/2010, pg 14

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