Occupational fraud

What is the definition of Occupational Fraud?

Occupational fraud is defined as an employee’s misuse or abuse of his position for his own enrichment by intentional misappropriation or misuse of company assets. This may include fraud by an employee, manager or statutory representative.

The most frequent types of occupational fraud include:

• Bribery or corruption of employees
• Misappropriation of cash
• Billing schemes
• Unauthorized expense reimbursements
• Unrecorded sales
• Misappropriation of company assets
• Payroll fraud (ghost employees, bonuses, compensations)
• Use of corporate funds for private purposes
• Financial statement fraud

Reasons

According to the fraud triangle theory formulated in the research of Dr. Donald Cressey, employees commit fraud when the three following factors are present:

• Motive
• Opportunity
• Rationalization

According to the ACFE, the specific motives leading employees to commit fraud include:

• Inability of the employee to pay off his debts
• Personal problems (e.g. drug addiction, alcoholism)
• Work failure (problems at work)
• Physical isolation of the employee (isolation from people who could help him)
• Loss of status (employee wants to gain social status but lacks the qualifications or other means to do so)
• Employee-employer relationship (employee feels discriminated against, abused, underappreciated)
• Opportunity to commit fraud (employee finds out that company controls do not work)
• Rationalization (revenge against the employer)
• Rationalization (employee resolves his temporary financial problems and intends to return the misappropriated funds)