Tackling Fraud in the Workplace

Subject

Who to trust? Tackling Employee Fraud 

Chapter 1: Introduction

With globalization and the increasing use of technology, the problem of fraud and its great complexity has become an enormous concern for the businesses. The businesses not only attack by unknown distance fraudsters but it suffers from insider fraudsters too. This study will outline the internal employee fraud, its measurements and controls within the businesses. The fraudsters, that they can be operators, managers, directors or even owners of the businesses. Insiders’ fraud became mutual and businesses are alarmed identifying methods to reduce the workplace fraud. Even though fraud cannot be eliminated completely as because of its nature, Brooks, Button and Frimpong (2009) stated that understanding lack of awareness of deception tactics, techniques and calculating fraud will help decrease its amount. There are some approaches to prevent fraud activities to decrease its influences, detect fraud risks and cope with them. However, are these approaches enough to stop fraudulent activities within the businesses?

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This research will examine broad range of secondary data that sources retrieved from both government and private sector organisations, financial and anti-fraud organisation’s publications with the purpose of measure the existing condition of tackling with the workplace fraud, trends and, it will search for possible developments that might result in a decrease amount of dishonest activities and loss to build an better confidence and trust within the organizations.

Background

Stoy Hayward (2008) underlined that the main risk to organizations was not from outside fraudsters, but from employees and managers, calculated for 46% of deception cases and loss of companies £541 million. This formed %77 of the total of fraud (Hayward, 2008 cited by Smith, 2011).

CIFAS study claimed that employee fraud has been even more increasing concern lately. In 2015, members of CIFAS recorded and identified more workplace fraud cases than ever before. More than 320,000 instances were identified and the figure increased more by 16% than the figures for 2014. (CIFAS, 2016) In this perspective, regardless sizes of companies, there is a need to understand workplace fraud and raise a question why and how it occurs who more likely to commit this crime and finally what can be done to reduce the amount of workplace fraud cases. Workplace fraud is equally problematic and expensive to reveal, even once it is realised. For that reason, organisations must to stop fraud activities at the first place before its occurrence. However the question is how to do this? Better understanding of workplace fraud and employees might help to reduce these high level of workplace fraudulent activities.

Research aims

• Research objectives (3 or 4)

The broad aims of this research are to enhance the understanding, assessing the nature of workplace fraud and organisational measures to address the problem. It will be addressed with reference to three specific objectives.

• To explore the nature of insider fraud in the workplace (Chapter 3 title)

First objective seeks to establish the nature and scale of insider fraud, its definition, and identifying types of workplace fraud and understanding perpetrators’ mind and behaviours, examining what is already known.

• To assess how effectively organisations are addressing the problem (Chapter 4 title)

Second objective is to assess how effectively organisations are addressing the problem. It will also look into types of measurement and their strengths and weakness addressed with reference to the literature in order to examine what improvements could be implemented.

• To make recommendations on how organisations can be better equipped to manage the challenge of insider fraud. (Chapter 5 title – How organisations manage to fight insider fraud)

Third objective is concerning to make recommendations on how organisations’ counter fraud capability can be better equipped to manage the challenge of insider fraud.

Chapter 2: First thematic chapter related to 1st objective

The nature of insider fraud in the workplace

Introduction

This chapter outline the nature and scale of insider fraud, its definition, and identifying types of workplace fraud and understanding perpetrators’ mind and behaviours, examining what is already known.

What is fraud?

There is no global definition of fraud. Numerous definitions of fraud can be found in the legal and professional literature on the subject. However all of them contain the common notion of fraud being either theft by deception, or trickery. Thus, Stephen (1996):

Although the words fraud and corruption are often used interchangeably, a strict distinction between the two will be maintained in this paper and the focus will solely be on fraud. I believe that it is important to make this distinction and not to collapse the distinction between the two related phenomena. The reason for making this distinction is that corruption is associated with the misuse of public positions and consequently mostly associated with the public sector and public officials. As a result of these connotations corruption can be painted as something that affects only the public sector and public officials. By collapsing the distinction between fraud and corruption, fraud is equally being portrayed as something that mainly affects the public sector and public officials. This, however, is not the case. Fraud is a phenomenon that can occur in both the public and private sectors. It further is not a phenomenon in which only public officials are involved, but any employee or even outsiders can be perpetrators of fraud. Furthermore, corruption implies third-party involvement, while fraud does not necessarily imply third-party involvement. In the case of corruption employees violate their duty to their principals by colluding with a third party. Instead of fulfilling their obligations to their principals they abuse their positions by either accepting or demanding a bribe offered by or demanded of a third party. This is not the case in fraud. Here employees or even persons from outside the organization can commit fraud on their own initiative. Because there is not necessarily third-party involvement in fraud, it is much more difficult to detect. Third-party involvement always provides an immediate source of information that someone abused his or her position as employee. Exactly because fraud lacks this third- party involvement, it is more difficult to detect it and consequently a different approach is required to identify and combat it. Fraud within organizations can be defined as intentional deception by concealing or misrepresenting information that harms the financial interest of another person(s) and benefits the financial interests of the perpetrator. This differs from corruption, which can be defined as inducement by improper means to violate one’s duty towards one’s principal resulting in harm to the interest of another party and in financial benefit for the perpetrator. Because corruption has the element of inducement by a third party, it is often associated with bribery.

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2. Understanding Fraud

In order to fight fraud it is imperative first to gain a proper understanding of the phenomenon. Important work in this regard was done by Coleman.* In his book. The criminal elite: the sociology of white-collar crime, he contends that there always are three dimensions to fraud-motive, opportunity, and a lack of feelings of guilt. A brief discussion of each of the three dimensions follows.

2.1. Motive

In order to commit fraud one must have a sufficiently strong motivation for doing it. The aspirant fraudster is aware that s/he is about to commit an illegal deed that might result in penalties of some sort (e.g. dismissal, fines, and imprisonment). They thus should have a sufficiently strong motive for perpetrating fraud despite the fact that they know it is illegal and despite the fact that they know it might result in them being punished for doing it. 2.2. Opportunity Opportunity for fraud is, according to Coleman, enhanced by three factors. First, the person must be in a position of trust or must have access to persons in positions of trust. Second, the person must have knowledge of the control systems of the company in order to be able to beat them. Third, the person should have access to the assets of the company. The combination of these three factors creates the opportunity for committing fraud.

2.3. Lack of feelings of guilt

Coleman’s third condition for fraud is that the perpetrator should not be deterred from his/her actions by feelings of guilt. Given the unique characteristic of fraud, viz., that most perpetrators commit fraud repeatedly, it is evident that a lack of feelings of guilt is a typical feature of fraud.’ In order to free themselves of such feelings of guilt, perpetrators of fraud should find some form of excuse or rationalization to rid themselves of feelings of guilt that might result from deliberately indulging in illegal acts of fraud.

In business terms, fraud is sometimes difficult to define as it extends, for example, from conduct as trivial as an employee having an extended lunch break without permission, to large scale misappropriation of funds by a company accountant involving many millions of dollars. Having an understanding of how fraud is defined, is thus able to help organisations decide how best to respond to individual cases when they arise as sometimes an incident could more appropriately be dealt with as a personnel management issue rather than an issue that require a direct legal response.

Coleman, J. W. 1989. The criminal elite. The sociology of white-collar crime. New York: St. Martin.

The 2010 Report to the Nations on Occupational Fraud and Abuse takes a comprehensive look at workplace schemes, their perpetrators, how the crimes were ultimately detected and their estimated cost.

The report is based on data compiled from a study of 1,843 cases of occupational fraud that occurred worldwide between January 2008 and December 2009. All information was provided by the Certified Fraud Examiners who investigated the cases. The study examines a wide range of misconduct by employees, managers and executives. “Occupational fraud schemes can be as simple as pilferage of company supplies or as complex as sophisticated financial statement frauds,” the report says. For the first time, the ACFE expanded the study to include cases from countries outside the U.S. The findings include feedback from 106 countries, with more than 40% of the cases happening outside the U.S. The charts and graphs featured here, which are global in scope unless otherwise indicated, are Just a slice of the overall results