Businesses suffer from theft and fraud of all kinds and the impact is quite profound. Impact range from wiping of small margins to a total wipe out of the business. Employee theft and fraud or occupational fraud contributes immensely to this phenomenon. The Association of Certified Fraud Examiners (ACFE) states in a 2012 report that a typical organization loses 5% of its revenues to occupational fraud. This translates to several millions of cedis in Ghana and trillions of dollars worldwide ($3.5 trillion). In the UK retail industry, the Centre for Retail research records £1.7 billion of losses is as a result of employee theft. How much of it is your business suffering? This syndrome is real and factual because the causative factor is in human behaviour.
All kinds of businesses in all location are victims to this syndrome, but smaller businesses are most at risk and that is where impact could be most grievous.
Having worked with some businesses in our major business districts in Ghana namely Makola, Okaishie, Kumasi Central Markets and others, one need not conduct any serious research to ascertain the havoc employee theft and fraud have caused businesses. A cursory research by the Ghana Talks Business team reveals 97% of businesses above 2 years in operation having fallen victim to employee theft and fraud. Some crushed out never to return. I can site one big shop with monthly turnover of Ghs2,000,000 which is no more in business largely due to occupational fraud. Large organisations also fall big victims but only choose not to report for reputation sake. The recent spate of disclaimers in the papers these days confirm.
Occupational fraud has been mainly classified into three areas:
· Asset misappropriations: mostly cash but also includes non-cash asset
· Corruption: where a person uses his disposition to make gains through unauthorized channels
· Fraudulent Financial Reporting: falsification of any kind of financial records to mask the true performance for whatever reason
All these happen under a set of conditions placed in what is called the fraud triangle
Investigations into fraud activities have culprits confess to at least one of these three factors.
Controlling Occupational Fraud
Control of employee theft/fraud comes from reducing or eliminating one or all of these factors. Humans are naturally opportunistic and so any opportunity to be involved in such actions would be utilized. Even good employees could be tempted to commit fraud if there are no barriers to these three factors.
The first step to fighting this havoc wreaker is to be committed to it, both in mind and in budget. Most business owners especially for small business find this so costly and so damn the consequences. The consequences do catch up with them and profitability is dented if the business ever continues as a going concern. For large organisations the internal control function should not be seen just as a cost center waiting to sup. A robust control unit should be set and equipped to function. Their risk management strategies should be regularly reviewed to reflect current changes in the business environment.
Other potent methods include setting a hotline to report occupational fraud (for large organisations) or taking tip off seriously and discreetly rewarding whistleblowers if found to be true.
Conducting snap checks on work or searches if applicable. A research by the ACFE proved this strategy to be the second most effective strategy.
If organisations can afford to set up security system like CCTV whose videos will be reviewed regularly.
Dealing swiftly and ruthlessly with such incidents that are proven to be true.
Organisations should remain true to policies or intentions already communicated on how fraud or theft would be dealt with.
Suffice to say that fraudsters are always ahead in the game and so businesses would always play catch-up but with good planning as ones enumerated above, you should be on your way saving your business or organisation massive leakage.
MDoZ Business Consultants