Why Does Workplace Fraud Happen?

Workplace fraud can range from fairly mild in its effects, to seriously damaging. Fraud can cause significant financial losses for a company, for example, and it can also diminish and erode corporate culture. It doesn’t mean an employee is a horrible person if they commit fraud, but that doesn’t make it any less damaging to the organization.

Having an understanding of where and why workplace fraud occurs is important to help find ways to alleviate it. It’s also important to realize that fraud can be committed by any employee, including company executives.

The following are some things to understand as far as the reasons workplace fraud occurs.

There’s No Centralized Control

For many companies, despite the widespread availability of technology and software solutions that could provide more visibility and control to prevent fraud, these solutions still aren’t implemented.

One example is with T&E. T&E costs can account for as much as 10 percent of many companies’ budgets. This is also an area that commonly includes significant fraud, and sometimes even inadvertent but costly failures to follow policy.

The use of expense management software could help alleviate much of this by providing a sense of centralized control and visibility, but employers may not want to invest in the software, or they may not be willing to take the time to implement it. There are so many options to centralize control and offer better visibility and analytics, but it’s important that organizations make this a priority.

Fraud Is Part of the Culture

At many organizations, there is the sense that fraud is something that’s overlooked and it’s viewed as not necessarily a big deal. When employees feel like everyone is committing fraud at some level, it becomes engrained in the company culture.

It’s difficult to alleviate fraud when it is widespread and when it isn’t seen as something that anyone is doing anything about. Many times when fraud seems to be part of the culture, even if it’s just little ways of committing fraud, it has started at the top and worked its way down.

Lack of Clarity on Policies

Fraud doesn’t even necessarily have to be something an employee is willfully committing. It may be something they are unclear on. This can happen with T&E, for example. Policies could be outdated, they might not be something that’s readily available to employees, or they might be overly complex or bureaucratic. It is up to the employer to ensure they have regularly updated, modern, relevant and strategic policies in place to prevent employee fraud.

Finally, there tends to be inconsistency in how policies and enforced and how fraud is dealt with. For example, an executive might be treated differently if fraud is discovered as opposed to a lower level employee. This sets a bad precedent, and the more someone feels that there are inconsistencies in how fraud is dealt with in the workplace, the more likely it is that they are going to engage in similar behaviors. Companies need to have not only firm procedural policies in place, but also guidelines for how these policies are enforced.

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