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Preventing and Detecting Occupational Fraud

Whether you call it employee theft, embezzlement, or misuse of company assets and resources, occupational fraud is the most common, and also most preventable type of fraud a company can face. According to the Association of certified Fraud Examiners latest report, losses due to occupational fraud in 2017 totaled $7 billion.


There are three common types of occupational fraud.


  • Asset Misappropriation: This is the most common type of fraud and usually involves an employee misusing or stealing the organizations resources. While this can be as straightforward as the theft of cash, it can also involve falsifying expense reports or check tampering.

  • Corruption: This occurs when an employee influences a business transaction in order to personally benefit from it. This is usually linked with asset misappropriation and is most commonly committed by senior management or some other high-level position.

  • Financial Statement Fraud: This is the secret killer to your organization. While it may be the least common source of fraud, it is easily the most expensive with an average loss of $800,000 to a business.


So what policies should be put in place to help identify and stop fraud before it causes too much financial damage?


  • Closely review all bank statements: Many occupational fraud cases involve skimming cash or making fake payments. An independent party should examine bank statements keeping an eye out for strange patterns or payments made to unfamiliar vendors.

  • Review internal controls: Whatever controls you have in place should be followed. They should also be reviewed on a regular basis by a qualified professional, especially if the company is experiencing growth or accounting personnel change.

  • Have a hotline: Give employees a place to report suspicious conduct without fear of retribution. Many cases of occupational fraud are investigated because of employee tips.


It is crucial that companies not only learn how to identify fraud when it’s happening, but prevent it from happening in the first place. According to the Association of Certified Fraud Examiners there are 6 “red flags” that 85% fraudsters might exhibit.


  • Living beyond their means.

  • Experiencing financial difficulties.

  • Going through a divorce or other family problems.

  • Having an unusually close relationship with a vendor or customer.

  • Exhibiting control issues on the job and resists sharing duties.

  • Has a “wheeler-dealer” attitude.


Performing thorough background checks on employees and speaking to their personal references can help to establish an applicant’s soft skills, and in particular, their honesty. If they are dishonest about their background on their resume, can you trust them within your organization?


So if after all that, the company still falls victim to occupational fraud, what steps should be taken?


  • Thoroughly investigate: This is the time to review all the evidence, conduct interviews, and take statements. The investigation should be documented and you may need to bring in a forensic accountant.

  • Recover assets: This will probably require legal action and enforcement and although you may not recover all the assets, it sends a strong message that fraud will not be tolerated.

  • Reporting: Reporting fraud to the proper authorities is important for compliance and legal issues. It also provides company stakeholders with the confidence that any fraud is being handled in an effective manner.


Every company should have a plan in place to prevent, detect, and respond to fraud. If you have any questions, we are here to help.

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Zinman & Company PC

260 Knowles Avenue, Suite 334,

 Southampton, PA 18966

Telephone: (215) 357-2250

Fax: (215) 357-8995

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