When an employee of a business sees an opportunity for personal gain through illegal or immoral activity at work, they can become tempted to commit a type of fraud known as occupational fraud.
This type of fraud can happen for any number of reasons; however, regardless of the employee’s motivation, successfully carrying out occupational fraud requires an environment conducive to both the fraudulent activity and the employee’s perception that their activity will go undetected.
The risk of occupational fraud is increasing for businesses of all sizes and it’s likely to keep climbing well into the future unless organisations proactively work to change the environment and make fraud much harder to commit and get away with. Small and medium-sized businesses (SMBs) in particular, have been hit hard by the disruption caused by the global pandemic. Many business leaders have been laser focused on how to recover, adapt, and plan for the uncertain times ahead. This only emphasises the importance of reducing the risk of fraud and creating strong processes to counter fraudulent activity.
Over the last 18 months, SMBs faced the reality of adapting to survive in the changed economic environment. They significantly adjusted business models, with some SMBs introducing new working models, such as remote or hybrid working and altering the chain-of-command and in-person activities to digital and remote.
The requirement to work productively from any location meant SMBs adopted technology and digitalised processes that were previously manual. This will continue to be vital for business to survive and grow in the future. And, automation can be especially important in helping protect businesses from fraud and building resiliency in the digital economy. Automated processes can detect potentially fraudulent activity based on pattern recognition, alerting managers to this activity before it costs the business money.
However, some businesses continue to rely on manual, paper-based, and/or email processes, which puts them at a greater risk of fraud due to the changed interactions between customers and suppliers.
During the pandemic, 72 per cent of Australian organisations reported that the risk of fraud and corruption had increased, and 92 per cent also believed that the risk of cyberfraud had increased. With businesses facing a new operating environment, 51 per cent of organisations reported that this had adversely impacted the ability to investigate suspected fraud or corruption in the business, but 25 per cent of organisation had delayed or cancelled fraud and corruption prevention programs during the pandemic.
The median loss due to fraud for businesses in Asia Pacific was US$195,000, according to a Report to the Nations global study on occupational fraud and abuse. For SMBs already struggling, fraud could prove to be a devasting blow. While fraud costs money, it can also introduce other risks around regulatory compliance. The impact of fraud can also affect employees, security, environment, reputation, and industry.
One of the most common forms of occupational fraud is non-compliant employee expenses, where employees spend company money on items that aren’t business-related. This can be difficult to identify and track manually. Similarly, tasks such as invoicing can be a target for fraud by duplicating supplier invoices. According to a KPMG Fraud Survey, 62 per cent of Australian organisations noted that employees were the biggest single source of risk.
An effective way of ensuring compliance and reducing the risk of fraud is by implementing an integrated and automated cloud-based management system that can track travel, expense, and invoices. This technology also offers security and cost efficiencies.
Automation plays a key role reducing the risk of fraud as it can review the data from expenses and invoices and reject any that are non-compliant. It also removes the risk of duplication and incorrect payments by comparing new invoices with purchase orders and previously paid invoices then alerting the finance team to any anomalies.
Occupational fraud can also be accidental. For example, when using a manual, spreadsheet-based process, employees can make errors such as inputting incorrect data or duplicating invoices. This makes it much easier for non-compliant expenses or invoices to slip through. Often, these errors can remain unnoticed until an audit is completed; however, by then it may be too late to recoup the costs. This means that SMBs may not even be aware of the financial impact non-compliant expenses are costing them.
Business resiliency is affected by fraud as incorrect business data can influence the wrong strategic decisions. As SMBs map the road to business recovery and growth, information and data insights are crucial; however, misinformation can mean the business may focus on the wrong areas or implement unnecessary processes and lose out on recovery time, resources, and financial growth.
Automation is key for businesses to survive occupational fraud. It’s the only way to move forward with confidence, leveraging accurate, valuable insights for business resilience and strategic future-planning.