Question

Based on your experience, how can the risk of occupational fraud be decreased?

It would be great if you can add some sample to elaborate the explanation. (min 450 words)

Answer 1

Occupational frauds are committed in different ways like assets misappropriation, bribery and corruption, manipulating financial statements etc. Assets misappropriation are the most common frauds that occur. Occurrence of an occupational fraud can lead to huge financial losses and loss of reputation for a company. So it is very important for an organization to prevent the occurrence of fraud.

Here are some methods through which the risk of occupational fraud can be decreased:

It is a better idea to know as much as possible about your employees: An employee likely to commit a fraud will exhibit sudden changes in behavior. For example, the employer must keep a close eye on an employee working overtime suddenly. Often observing and listening well to your employees can help in identifying people who are more likely to commit a fraud. Employees who feel stressed and who have resentment towards an employer are more likely to commit a fraud. For example, if an employee has been treated badly in front of others, he might plan a strategy to get revenge on his employer by committing a fraud.

Every employee must be made aware of the fraud policy of the company and the consequences of committing a fraud. People planning to commit fraud will understand that they are being watched and will be discouraged from doing something inappropriate.

Setting up an anonymous system for reporting frauds is a great way to continuously monitor the risks of occurrence of frauds. In addition to employees, customers and vendors can be encouraged to report suspicious activity or behavior while conducting their business dealings.

Effective internal controls will help greatly in reducing the risk of frauds. For example, segregating the duties of employees and then documenting transacting at different stages will help in avoiding financial frauds. The documents can be crosschecked at each level to see that they are accurate and are confirming with each other.

Sometimes some employees do not take leaves for vacation. This may be because they are hiding something and so not going away for long for the fear of being detected.. It is better to rotate employees between various jobs in a department. This will help in other employees in detecting anything fraudulent committed by the previous employee.

Certified fraud examiners and people certified in financial forensics can be employed by the company to constantly audit the records and to report any deviant or fraudulent activity. If not possible to hire them for long term, they must at least be employed as temporary consultants.

In addition, maintaining a positive work culture in the company will be helpful in preventing frauds from occurring. Having an open work culture and helping the employees can go a long way in keeping the employees happy thereby minimizing the risks of occurrence of frauds.