Many have heard stories or have had first-hand experiences with theft in the workplace. At times, the stories can be spectacular, such as the case of Rita Crundwell, the former Comptroller for the City of Dixon, IL, who stole $53 million from the City over the course of 20 years. However, many of these incidents never make the headlines, and many organizations believe that it will never happen to them.
As outlined in their 2014 Global Fraud Study, titled Report to the Nations on Occupational Fraud and Abuse, the Association of Certified Fraud Examiners (ACFE) reports that the typical organization loses 5% of revenues to fraud each year.
While some consequences of lost revenue may be easy to point to, there can be many other not-so-obvious effects. Public knowledge of employee theft issues can harm an organization’s reputation with customers, and damage to balance sheets can impact the ability to qualify for lines of credit, secure surety bonds or obtain financing.
While every organization faces the threat of internal fraud, implementing anti-fraud controls can reduce that risk. The ACFE Global Fraud Study identifies the top control weaknesses contributing to fraud as:
- Lack of Internal Controls
- Lack of Management Review
- Override of Existing Internal Controls
The ACFE Global Fraud Study also found that smaller organizations tended to have less anti-fraud controls in place than larger ones – meaning that smaller organizations may be more susceptible to fraud than larger ones.
Interestingly enough, the ACFE Global Fraud Study notes that external audits detected only 3% of the frauds, and that background checks may not be a good predictor of an employee’s likelihood to commit fraud. The study also notes that Initial detection of occupational frauds most often came via tips, and the most common source of tips was employees.
The upshot is that there are a wide variety of anti-fraud controls available to organizations of any size.
While implementing controls is an important first step to reducing or preventing theft in the workplace, no organization is immune.
Specialty insurance products are available to provide protection from employee theft as well as other types of crime losses.
Other crime coverages commonly requested are Computer Fraud and Funds Transfer Fraud coverage, which can protect against incidents where a hacker has obtained banking and password information to fraudulently divert bank funds.
Be aware that the terms and conditions of crime coverages can vary from policy to policy. For example, some crime policies provide coverage only after the employee has been convicted.
For more information
For access to the ACFE Global Fraud Study and more information on fraud controls, visit the ACFE website at www.acfe.com. Your insurance professional or risk manager can also be an excellent resource on risk controls and insurance protection.