Workplace Fraud Threatens All Businesses

If you think that fraud won’t occur at your workplace, you’re probably not being realistic. Fraud can occur anywhere, and the instances and level of sophistication of fraud are a growing concern of business owners and managers.

Chrissie Powers, co-owner of P.D. Eye Forensics, advised Whalen clients and banking executives about ways to deter fraud and how to minimize exposure to it at a special workshop held by the firm on June 5. Her presentation also covered the warning signs of workplace fraud and how to respond to suspicions of fraud.

Whalen & Company recently began partnering with P.D. Eye Forensics to offer specialized forensic and valuation services to the firm’s business and individual clients. The firm has expertise in fraud detection and deterrence, business valuations, damages and lost profits, bankruptcy services, marital relations and litigation support.

“Although the economy is improving slightly, the economic downturn will continue to have its effect on fraud in the workplace,” she told workshop participants. “It’s really been a perfect storm for fraud.”

According to Powers, as businesses have reduced the number of their employees or cut hours, there is often a reduction in internal controls and fewer proactive fraud prevention measures in place. In addition, the increased financial strain on employees during the economic hardship contributes to the likelihood of fraud.

Finally, bombardments of bad financial news cause mounting feelings of helplessness, pessimism and isolation, which allows employees to rationalize previously unthinkable acts. “Given enough financial pressure, someone in your organization is going to commit fraud,” Powers warned. “The pressure of financial strain is so strong that they don’t think there are other options.”

Research shows that 66 percent of employees will steal if they see others do so without consequence; 21 percent of employees are honest and will never steal from employer, and 13 percent of employees will steal regardless.

“Business owners need to ensure that proper fraud prevention procedures are in place,” Powers emphasized. “You can’t stop it, but you can slow it down and make it harder for fraudsters.” See box for ways to deter fraud.

Small businesses often don’t have enough employees to put segregation of duties in place or have sufficient internal controls. “Just because you have an audit doesn’t mean that you’re protected,” she said. “If it is immaterial to a financial statement, an auditor is not likely to catch it. An auditor’s job is not to find fraud.”

Asset misappropriation, involving payroll fraud, fraudulent invoicing or billing, or skimming revenues, is the most frequent fraud method, accounting for about 87 percent of the incidents. About one-third of the occurrences are due to corruption, where an individual uses his or her influence to obtain a benefit or kickback.

Fraudulent statements are the least frequent, but generally result in more loss to a company.

If you believe fraud has been committed, Powers recommends not confronting the suspect initially or calling the police. “You don’t want to give the employee time to destroy evidence, and the police don’t have enough time to investigate,” she explained.

She advises business owners to contact their lawyer, accountant and insurance agent. Generally, this will lead to a competent investigator.

To review Powers’ complete fraud presentation, click here, or visit the firm’s website at