Paying attention to changes in your employees' behavior is important for managers to do. Knowing that members of your staff are upset with fellow coworkers, with the process, or with something in their personal lives can help you address issues before they become workplace disruptions.
However, watching out for changes in behavior - such as a clerk trading in his Toyota Camry for a Jaguar - can also help your organization avoid fraud losses.
The Association of Certified Fraud Examiners recently released the 2012 Report to the Nations on Occupational Fraud and Abuse. Similar to previous surveys, the 2012 report shows that 81 percent of fraudsters displayed behavioral red flags connected to their fraudulent conduct.
According to the report, in 36 percent of cases, the fraudster was living beyond their means. Other common red flags to look out for are employees experiencing financial difficulties, which was the case in 27 percent of frauds, and staff members displaying excessive control issues, which was reported in 18 percent of cases.
Money problems often provide the motivation for fraud, while control issues are typically a symptom. After all, if you are trying to hide fraud from your organization, you are not going to want other people snooping around.
The report also discusses how most organizations hit by fraud find out about it. Surprisingly, external audits, which are the most commonly implemented control, are also one of the least successful at catching fraud. External audits are only responsible for catching 3 percent of the frauds reported in the ACFE survey.
Meanwhile, the most powerful tool continues to be employee tips. Forty-three percent of fraud cases were detected thanks to a tip. The second most successful detection method - management review - only detected 14.6 percent. Tips are nearly three times more likely to uncover fraud than the next best method.
Despite the success of tips, employee fraud hotlines are the ninth most widely implemented control. Fifty-four percent of organizations have a fraud hotline in place, compared to 80 percent that hire external audit firms.
Another surprising statistic is that the least common fraud control is rewards for whistleblowers, with only 9.4 percent offering them. Given the importance of employee tips in uncovering fraud, it seems organizations could benefit from giving employees incentives to report potential wrongdoing. Some companies may be getting the message, as the percentage offering rewards did increase nearly one percent between 2010 and 2012.
In addition to looking at how organizations detect fraud, the 2012 Report to the Nations also looks at fraud perpetrators in order to paint a picture of the typical fraudster. Unsurprisingly, the higher up in an organization the fraudster is, the higher the losses. Owners/executives are responsible for a median fraud loss of $573,000, compared to $60,000 for employees.
There is also a correlation between fraud losses and how long someone has worked for the organization. Fraudsters who stole money during their first year on the job made off with a median amount of $25,000. Meanwhile, fraudsters with ten years or more of experience caused $229,000 worth of damage.
The full report is a fascinating read and provides advice and recommendations for managers to make their organizations safer from fraud. Of course, you can also rely on the tried and true method of lurking in the parking garage to see if any of your employees are driving new luxury sports cars.
2012 ACFE Report to the Nations on Occupational Fraud and Abuse.
