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By taking alert measures, human resources can play a major role to put a dent in the global epidemic of fraud in the workplace.

An authoritative study reveals more than $6.3 billion in actual losses from occupational fraud in 2,410 cases.

The median loss of in fraud cases was $150,000, according to the Association of Certified Fraud Examiners (ACFE) in 2016. Some larger organizations suffered from multiple cases of fraud.

ACFE says the actual fraud losses in the aggregate total in the trillions of dollars.

The typical company suffers a five percent loss in revenue.

Investigators say human resources can help in the fight against fraud with comprehensive pre-hiring background checks including senior managers, as well as being on guard for unusual behavior of workers and using other tactics.

From the most common to the least common, ACFE outlines three broad categories of fraud:

— “Asset misappropriation” such as stealing of cash, equipment and information which includes billing schemes, cash larceny, check tampering, false expenses, phony disbursements, and payroll fraud.

— “Corruption fraud” includes conflict of interest, and bribery and extortion.

— “Financial statement fraud.”

Executive fraud

Executives committed 18.9 percent of the fraud with a median loss of $703,000. They are able to evade controls more easily than other employees.

Managers were responsible for 35.8 percent with a median loss of $173,000.

Subordinates committed 40.9 percent for a median loss of $65,000.

Sixty-nine percent were male fraudsters with a median loss of $187,000. While women fraudsters accounted for a median loss of $100,000.

About half of the wrongdoers had been with their employers for more than five years. Their median loss was $240.000.

Fifty-five percent were between 31 and 45 years old. Those over 40 were accountable for a $250,000 median loss.

Sixty-one percent had a college degree or higher and committed a median loss of $207,000. Less educated fraudsters had a $100,000 median loss.

Early detection

HR can help prevent fraud by being on the lookout for six so-called red flags in behavior of the workforce.

Behavioral red flags include:

  1. Living beyond means – 45.8 percent of the cases
  2. Financial difficulties – 30 percent
  3. Unusually close relationships with vendors or customers – 20.1 percent
  4. Excessive control issues – 15.3 percent
  5. A “wheeler-dealer” attitude involving unscrupulous behavior – 15.3 percent
  6. Recent divorce or family problems – 13.4 percent

In addition to effective financial controls and extensive background checks, ACFE recommends fraud hotlines, job rotation, mandatory vacations, fraud training, and support programs.

From the Coach’s Corner, here are related resources:

Embezzlement: Guidelines to Uncover and Prevent it — Embezzlement is a widespread nightmare. Here are proven strategies to discover embezzlement, and to prevent from occurring.

Embezzlement Tips to Protect Your Nonprofit or Company Assets —  Embezzlement is a widespread nightmare in business and the public sector. If you surf the Internet using the key word, embezzlement, you’ll find seemingly countless headlines.

10 Unusual Prevention Tips to Effectively Fight Fraud — If you ever think you might be victimized by fraud, you probably are. Businesspeople are typically victimized by fraud in several ways. The causes will surprise you. Here are simple ways to prevent fraud.

HR — Avoid the 10 Most Common Background Screening Gaffes — In human resources, all background checks are not equal. It’s important to avoid the 10 most-common background-screening errors.

Risk Management in Hiring: Pre-Employment Screening Tips — Here are two questions about hiring: 1) what’s the biggest mistake companies make in hiring employees; and 2) what’s the biggest legal obstacle employers face in hiring? Here’s what to do about background screening

Best Management/HR Tips: Check References of Applicants — Even if you believe you’ve found an impeccable candidate, you must conduct precise reference checks. If you don’t, you risk paying a high price later.

Legal HR Issues? Best Practices in Workplace Investigations — As an employer, one of your biggest nightmares can be issues involving your employees. There can be many reasons to conduct an investigation. “Action expresses priorities,” said Mohandas Gandhi. So you should act quickly.

“The challenge for capitalism is that the things that breed trust also breed the environment for fraud.”

-James Surowiecki


Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.