What Is Occupational Fraud & How To Prevent It?

Occupational fraud is typically the fraud committed by employees of a firm & this type of fraud has three categories: asset misappropriation, corruption, and financial fraud. About 5% of U.S. firms lose their revenues due to these frauds.

Categories Of Fraud

Occupational fraud and abuse- classified into three primary classes:

• Asset Misappropriations: It happens when an employee utilizes an employer’s asset for personal use. It is not as easy as money being robbed by simple stealing, as it can also happen when the employee borrows or misuses those assets for personal reasons. Common cash theft is the most straightforward form of asset misappropriation. In addition to this, more cultivated ways of asset misappropriation may happen in three areas of an organization: revenue, expenditure, and production cycle.
• Corruption: The main form of corruption is when a person exercises disproportionate impact upon others. Examples of this form are clashes of interest, bribery, inappropriate bonuses, and financial extortion. 
• Deceitful Financial Reporting This happens when a person exploits an organization’s financial statements. This fraud seriously damages the company, money lenders, stakeholders, and others who depend upon financial statements- to make decisions. Usually, senior managers commit financial statement frauds. However, it is the least common state of occupational fraud, but financial statement fraud is the most expensive. Reasons for exploiting financial statements vary from poor company performance to greed, and it appears where a possibility is present. The most typical form of financial statement fraud is manipulating revenues.

Prevention Of Occupational Fraud & Abuse

Every Organization should have a calculated plan to control and detect fraud and must never underrate the possibility of an attack from within. While some fraudsters showed at least one of the below behaviors

• living outside their means
• unusually close relationship with vendor/customer
• financial problems
• wheeler-dealer mindset
• control, problems, reluctance to share duties
• divorce/family issues

To reduce occupational fraud, an organization must be mindful of its dangers and inner weaknesses, execute effective rules, and have routine monitoring, internal and external audits, reconciliations, and physical examinations. 

There are many easy and affordable actions an organization can take to minimize the chance of fraud.

More control tends to be associated with a reduced fraud loss rate. In addition, an organization can offer fraud detection techniques such as tip hotlines and open-door policies where obscurity and confidentiality are assured. In general, rules that minimize chances and motivation with fraud detection systems will likely translate into a decrease in losses due to fraud. 

Expert Accounting Firm In Arlington

Employing a few simple strategies and rules can take your firm a long way to secure it from becoming a victim of occupation fraud & abuse.

The help of an expert, professional & experienced accounting firm located in Arlington can help you and your firm understand the fraud, the ways to prevent them from happening, & how to manage business finances effectively.

We focus on detailed control policies and techniques & implement them to help an organization protect its resources.

We are a certified accounting firm serving you in the location of Seagoville, Plano, TX as well. Contact us today if you need more information about the taxpayer and business financial management.