An examination into employee fraud

Runing caput: Employee Fraud

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Subject: Employee Fraud



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Employee fraud is a grave job confronting many organisations globally. This paper outlines the kineticss of employee fraud. It attempts to analyse the job of employee fraud in concern endeavors. It explains what employee fraud means and what causes employee fraud or instead what motivates employees to perpetrate fraud. It besides looks into the process of observing employee fraud. Finally it suggests assorted ways of controling the job ; the ordinances, criterions, control steps and ethical demands that must be put in topographic point, to guarantee that this frailty does non nip the ability of concerns to boom.

Cardinal words:Fraud, employee, employer, force per unit area, rationalisation, peculation, confederacy, forensic.


Employee fraud is one of the most serious issues sabotaging concern success in the universe. Following a great figure of major dirts recently, there has been a batch of dedicated research and attending being channeled into the battle against employee fraud. Regardless of the figure of employees or the type of activities that a concern endeavor trades with, each concern globally is extremely susceptible to employee fraud. Employee fraud is a high hazard frailty to the concern endeavor because it leads to immense and important losingss to the concern. The losingss incurred by the concern are in footings of fiscal losingss and damaging of the public image of the concern. For case, many clients will non swear their investings with a concern endeavor which can non safeguard even its ain resources from malicious employees. The clients will show uncertainties on the ability of the same malicious employees to pull off their investings providentially. Comprehension of the kineticss of employee fraud, what causes it, how to observe it and how to forestall it is necessary to change by reversal the increasing figure and strength of dirts related to employee fraud.

One of the assorted researches on the issue of employee fraud was conducted by Price Waterhouse Coopers ( PWC ) . Harmonizing to this planetary economic offense survey of 2009 by PWC, it was observed that the current economic turbulency is responsible for the shining of the art of employee fraud taking to the outgrowth of fraud incidences of great magnitude. The figure of employee dirts was besides noted to be on a steep slope. Consequently this attracted a batch of attending both from the employers and the general populace who were unmindful of the gravitation of employee fraud in concern establishments. To the employers this had the consequence that it instilled a sense of cautiousness when covering with the employees ( Timon, 2009 ) . The employers were besides forced to set in topographic point aggressive professional ordinances and ethical criterions to safeguard the image of the concern establishment by forestalling concern fraud. Many concern proprietors shifted their attitude on the concern audit procedure being a fiscal records verifying procedure to being a manner of fraud sensing and bar ( Vitalija, 2011 ) .

Employee fraud

Employee fraud is defined as the deliberate abuse of the assets and resources of the employer for the employee’s personal enrichment by taking advantage of 1s place in the organisation. Employee fraud can besides be described as any title or workss carried out by a worker in an organisation, a contractor contracted by the organisation or at 3rd party entity trusted by the organisation that causes fiscal losingss or has the possible to do fiscal losingss to the organisation. Employee fraud is besides referred to as peculation, occupational fraud, workplace fraud or internal fraud. Employee fraud is normally confused with footings like ignorance, carelessness and mistake. However, employee fraud is different from these signifiers of unethical behavior in the sense that fraud is normally knowing and premeditated or calculated with the purpose of misrepresentation ( Brent, 2012 ) . Employee fraud is non merely risky to the administration, but besides has negative impact on the national and planetary economic system every bit good. It is estimated that a U.S. concern loses an norm of 5 % -7 % one-year income through employee fraud ( Vitalija, 2011 ) . This means that the economic system of the state besides suffers a 5 % -7 % reverse ( PWC, 2009 ) . One of the most controversial dirts affecting employee fraud is that of two former employees of the JPMorgan Chase bank. The dirt was popularly referred to as the “London giant scandal.” The dirt cost the bank $ 6.2 billion. The employees falsified books and records associating to trading losingss. The employees were subjected to condemnable prosecution in New York in 2013 ( Vitalija, 2011 ) .

Causes of employee fraud

The most successful manner to cover with employee fraud is to concentrate on ways of bar. The procedure of forestalling employee fraud is by a great extent cheaper and devour less clip resources than covering with the wake of the fraud dirt. To expeditiously forestall employee fraud, it is necessary to understand what causes employee fraud ( Brent, 2012 ) . A bulk of people hold the impression that greed is the premier motivation factor for employee fraud. In order to demystify these misconceptions about employee fraud, a criminologist Dr. Donald Cressey came up with a construct known as the fraud trigon ( Joseph, 1997 ) . This theoretical account that helps to understand what motivates an employee to perpetrate fraud was based on intensive and extended research on workplace fraudsters who he referred to as “trust violators.” Harmonizing to the fraud trigon, there are three factors that must be to ask the committee of employee fraud. These are force per unit area, chance and rationalization ( Brent, 2012 ) .

The first factor ; force per unit area, refers to presence of non-shareable fiscal demand ( Joseph, 1997 ) . This is the primary motive behind employee fraud. Pressure describes a fiscal obstruction that the employee can non manage at his or her present fiscal position. This includes personal jobs like inability to pay the measures, a chancing dependence, drug dependence or desire to hold a better auto or house. The obstruction may besides be a professional obstruction like the demand to run into the end product marks at topographic point of work and the demand to better productiveness to gain and keep investor assurance ( Joseph, 1997 ) . Since the employee can non work out this hurdle this job through any transparent means, he or she starts to see an alternate manner of work outing it likely through an illegal agencies such as pilfering or embezzlement.

The 2nd constituent of the fraud trigon is chance. Opportunity refers to the agencies through which the employee intends to work out the job that he or she is faced with. It describes the manner the employee anticipates to utilize or her place to assist him or her to get the better of the hurdle. It is at this phase that the employee determines which the best manner is to perpetrate the illegal act with minimum hazard of being caught ( Joseph, 1997 ) . The employee is to the full cognizant that the act they intend to put to death is non appropriate. They know that they are at a hazard of being prosecuted or lose the occupation or both if their actions are discovered. Therefore they are cautious to make everything in extreme secretiveness ( Brent, 2012 ) . If they involve person else they are likely to utilize a signifier of an arbitrative motivational means to purchase their silence. A good illustration is where a bank employee gets entree to unfilled check foliages. The employee may comprehend this as an chance to utilize their place to steal the financess. He or she may make this by composing the check to him or herself. However, there is still a opportunity to be caught if this bank employee is non the 1 who will treat the check. Therefore he or she will either necessitate to be the 1 who processes the check or liaise with another employee of the bank who will treat the check. The two can so portion the financess harmonizing to a sharing expression that is agreed upon by them ( Joseph, 1997 ) .

The 3rd constituent of fraud trigon is rationalisation. Most employee fraudsters are non typical felons ( Joseph, 1997 ) . Most of them even do non hold a record of condemnable activities and the fraud may be their first condemnable activity. They are largely non proud of this act but they view themselves as guiltless persons who are caught up in hard fortunes. Rationalization involves formalizing their Acts of the Apostless and doing them look tolerable and all right to themselves ( Joseph, 1997 ) . Most employee fraudsters will give alibis such as hey were merely borrowing the money, they had to make it to prolong their household, they had to make it to avoid losing their occupation or the employer was unjust and he deserved to be defrauded.

With these three factors in topographic point, employee fraud may besides be fuelled by other factors in the concern construction including deficiency of or hapless internal control constructions. These may ensue from slack control steps in the administration ( Steve, 2003 ) . Another extra factor is the state of affairs where the director overrules the administrative constructions and control mechanisms. Since the director is a senior employee, the junior employees are less likely to oppugn any embezzlement on the portion of the director. Conspiracy between the workers to victimize the employer may besides promote an environment of employee fraud. Finally, perfidy affecting the employees and a contractor or a 3rd party may besides amount to employee fraud ( Joseph, 1997 ) .

Detection of employee fraud

Detection of employee fraud can be accomplished utilizing a figure of ways. In the United States of America, 32.4 % of the instances of employee fraud are detected through tips, largely from anon. beginnings. 25.4 % of the fraud instances are discovered by accident. This is in instances where the culprit do non thing through their program carefully taking to an mistake that exposes their soiled workss. Finally, 20.2 % of the employee fraud instances are revealed through the audit procedure. The scrutinizing procedure may be done for confirmation of records and reconciliation of histories. The audit may besides be done for forensic intents where there are claims of employee fraud or where embezzlement is suspected. It may besides be done to corroborate allegations of embezzlement where the suspect has denied the claims ( Vitalija, 2011 ) .

There is a set of unusual activity arrows or signals that aid the forensic hearers to observe cases where there may be the presence of instances of employee fraud. This unusual activity is referred to as a ruddy flag ( Steven, 2012 ) . It signifies activities that deviate from the norm that necessitate farther examination ( Joseph, 1997 ) . These include vicissitudes in the life style of the employee, significant debt jobs, hard recognition state of affairss, altered behaviour tendencies e.g. drug maltreatment and chancing dependence, ignoring one-year holiday, hesitancy to give information to the hearers, employees being involved in perennial statements with the hearers, losing altered or copied paperss, employees openly minimizing the regulative organic structures and auction of the administrations assets at an undervalued rate ( Steven, 2012 ) . These signals can non be used to deduce guilt but they are merely an warning for fraud. There are computing machine plans in concern records analysis bundles that help in placing the ruddy flags and find the badness of the underlying issues marked by each several ruddy flag ( Timon, 2009 ) .

Prevention of employee fraud

The procedure of forestalling and avoiding employee fraud is a wide and a comprehensive 1. The disposal of the administration bears the highest duty when it comes to controling employee fraud. It starts from the engaging procedure to the clip the employee is inducted into the work force ( Steve, 2003 ) . The first step to forestall employee fraud is to carry on the hiring procedure providentially. The disposal can make this by guaranting the there is sufficient background cheques before the employee is employed. This will assist the administration disposal to place campaigners who have a past history of professional misconduct in signifier of workplace fraud ( Steve, 2003 ) . It besides helps the employer to find the inclination of the employee to perpetrate fraud depending on the possible beginnings of fiscal force per unit area. This includes history of drug maltreatment, dependence to chancing, recognition jobs, debt jobs and divorce and mortgage position ( Steven, 2012 ) .

The 2nd manner that the employer can forestall employee fraud is by size uping the candidate’s referees. The referees can supply priceless information about the work moralss of the campaigner and salvage the concern from using a possible fraudster. The 3rd manner that employee fraud can be prevented is by set uping and sensitizing the workers on a sensible codification of behavior. The disposal should be actively involved in the procedure of continuing the ethical control mechanisms to put a good illustration to the remainder of the work force. While this does non discourage most fraudsters, it clearly lays out boundaries which when violated would amount to misbehave ( Brent, 2012 ) .

Another extra scheme that can be employed to forestall employee fraud is placing and covering with marks of force per unit area. Most workers commit fraud because they do non experience appreciated at the workplace. The may besides perpetrate fraud if they are under force per unit area both professionally and personally ( Timon, 2009 ) . Therefore, the employer should ever be on the sentinel for the ruddy flags antecedently identified. It is ever prudent for the administration to react to the marks of force per unit area and turn toing them instead than waiting until it is excessively late ( Brent, 2012 ) .

In decision, instances of employee fraud have been on the rise in the old old ages. They cost the economic system and the several administrations a immense amount of money. Therefore, this necessitates the demand to take the necessary steps through timely intercession ( Vitalija, 2011 ) . The success of the intercessions entirely depends on the willingness of the administration to turn to the causes of fraud and trade with these causes providentially to salvage the administrations from enduring fiscal losingss.


Brent E. ( 2012 ).Forensic Fraud: Evaluating jurisprudence enforcement and forensic scientific discipline civilizations in the context of tester misconduct.Pp.17-44

Joseph T. ( 1997 ) . Fraud and maltreatment:The Fraud Triangle.Obsidian publication co. pp. 1-56

PWC. ( 2009 ) .The Global Economic Crime Study.

Steve A. ( 2003 ) . Fraud scrutiny:workplace fraud.Thomson south-western publication. Pp. 17-26

Steven J. , Thomas P. ( 2012 ) .Red Flags for Fraud.State of New York Office of the State Comptroller. Pp. 1-15.

Timon M. ( 2009 ) .Employee fraud ; the internal storm.Pp. 1-3

Vitalija B. ( 2011 ) .An Empirical Study of Audit Expectation Gap.Pp. 1-74.


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