Introduction Occupational fraud is said to be that fraud perpetrated by an employee of an organization against his organization. According to the Association of Certified Fraud Examiners (ACFE), “occupational fraud is the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets. ” (ACFE, 2006). These perpetrators use deceit and or trickery to misuse and or steal the resources of the organization for their own personal benefits either directly or indirectly. In this paper, we want to take a look at how some of these frauds could be perpetrated.
Fraudulent Disbursements Fraud is categorized according to type, and the three types that we want to examine here, among others falls under the category of fraudulent disbursements; they are billing schemes, check tampering schemes, and payroll schemes.. This category of fraud is said to be the most prevalent form of asset misappropriation. They are said to be committed when an employee uses his position effect payments for some transactions that are not supposed to be paid for. Fraudulent disbursements are said to always leave audit trail since cash and or checks leave the organization fraudulently after being recorded on the books.
They are sometimes referred to as on-book fraud schemes. BILLING SCHEMES In billing schemes, it is the purchasing function of an organization that is being attacked. This scheme is the most costly and the most popular case of fraudulent disbursement. In billing scheme, an organization is made to buy or pay for goods and or services that are either not needed by the organization, not in existent, or are overpriced. Here the fraudster creates a false support documents such as invoices, purchase orders, purchase requisitions, and receiving reports for a fraudulent transaction to trick the victim organization to issue a check(s).
The fraudster stands to unlawfully gain cash, goods, and or services in billing scheme. Sometimes, the fraudster may by running a voucher for personal purchases through the payable system make personal purchases and charge them to the organization’s account or on the company‘s credit card or on a credit account as though those were business expenses. The outstanding methods of billing schemes include shell company schemes; overbilling involving existing vendors; and personal purchases with company funds CHECK TAMPERING SCHEMES
This is a type of scheme whereby fraudulent checks are being prepared by an employee for his personal benefit(s) and or when a check that is meant for a third party is being intercepted by an employee and converted to his personal benefit. In check tampering, the fraudster takes physical control of a check by placing false information on the said check rather than rely on false support for the disbursement. The outstanding feature here is that the fraudster places false information on an organization’s check which helps him to unlawfully receive money from his employer.
The false information might be in the form of forged endorsement, altered payee and or altered amount of the check. Certain factors such as access to the company’s bank statements, checkbook, and the ability to forge and or alter other face value information on the check are necessary conditions for effective check tampering. Here the perpetrators simply identifies and exploits an organization’s check-writing processes weaknesses in order to successfully carry out their operations.
Forged maker schemes; forged endorsement schemes; altered payee schemes; concealed check schemes; and, authorized maker schemes are the outstanding methods of check tampering. PAYROLL SCHEMES Payroll schemes are not very popular but their resulting effects can be devastating. This type of fraud occurs when an employee fraudulently issues paychecks to an ex-employee, while routing the payment to a bank account that he controls; and or when an employee overstates the number of hours worked or is able to increase his rate of pay.
Just like in the billing schemes, false documents and or claims are produced by the fraudster for his employer to distribute funds which in turn benefits him. The false claims occurs when the employee document that are concerned with the functions of payroll. Ghost employee schemes, falsified hours and salary; and, commission schemes are amongst the most popular forms of payroll fraud. Fraud Prevention There is some level of exposure to the risk of fraud in every organization.
It is the inherent fraud risk in a business, the effectiveness of internal control and the integrity of employees that determines the degree of exposure therein. In order to stay on top, the internal controls must always be evolving to keep up with the changing business atmosphere and to be relevant for the business. The organization must ensure that fraud prevention training; code of ethics and conduct to set appropriate tone at the top; appropriate reporting mechanism through which employees can voice their concerns, are present in the control environment.
Also, there should be a mandatory job rotation periodically; physical safeguard such as use of surveillance cameras should be considered; detailed financial statements should be prepared in a timely, and consideration should be given for a dual signature on checks. In the same vein, there should be adequate separation and or segregation of duties in place; and, employee and or company hotline should be implemented. It is a known fact that no security process is completely water-tight; as such there could still be some daring fraudster who may possibly bypass the system to perpetrate their act.
To catch such occurrences, the organization must allow for the independent verifications to be implemented. There should be implementation of an independent financial audit annually. Also, there should be provision for random surprise audits and implementation of a reward program for whistleblowers. Conclusion It is absolutely impossible to have an organization devoid of employees with fraud tendencies, but with an effective and efficient internal control mechanism, fraud can be detected and or prevented. With this done, the organization’s profitability can be greatly impacted positively.
With a good internal control system, an organization can greatly reduce the cost of fraud and if possible completely eliminate its occurrence. http://www. fdcpa. com/Construction/Fraud%20in%20Construction%20Companies. pdf http://www. acfe. com/uploadedFiles/Shared_Content/Products/Self-Study_CPE/intro-to-fraud-exam-2011-extract. pdf http://www. bcmscorp. com/insights/internal-fraud-prevention http://cms. oregon. gov/DAS/SCD/ASP/docs/ic/incontrolnewsletterdec07. pdf http://www. bizfilings. com/toolkit/sbg/run-a-business/fraud/guarding-against-internal-frauds-by-employees. aspx