Occupational fraud: the tell-tale signs?

Tuesday, March 18th, 2014

There is an excellent report titled, ‘Report to the Nations on occupational fraud and abuse’ published by the Association of Certified Fraud Examiners.

It is directly relevant to auditing and directing the engagement and management of your suppliers and contractors. 

The “corruption scheme” category addresses  activities in which an employee misuses his or her influence in a business transaction in a way that violates his or her duty to the employer in order to gain a direct or indirect benefit (e.g., schemes involving bribery or conflicts of interest).

The Report identifies 16 behavioural red flags of perpetrators. These are by ranking:

  • Living beyond means – 35.6%
  • Financial difficulties – 27.1%
  • Unusually close association with vendor/customer – 19.2%
  • Control issues, unwillingness to share duties – 18.2%
  • Divorce/Family problems – 14.8%
  • Wheeler-Dealer Attitude – 14.8%
  • Irritability, suspiciousness or defensiveness – 12.6%
  • Addiction problems – 8.4%
  • Past employment-related problems – 8.1%
  • Complained about inadequate pay – 7.9%
  • Refusal to take vacations – 6.5%
  • Excessive pressure from within organisation – 6.5%
  • Past legal problems – 5.3%
  • Complained about lack of authority – 4.8%
  • Excessive family/peer pressure for success – 4.7%
  • Instability in life circumstances – 4.1%

 Third party expenditure is a ripe area for an opportunity to engage in occupational fraud. 

Brian Farrington Ltd has produced a range of indicators that may indicate fraud. These include:

  • Reluctance to change suppliers
  • Refusal to issue invitations to tender
  • Single source decisions
  • Insistence on sole contact with suppliers
  • Price increases being granted without justification
  • Change orders issued that do not comply with procedures
  • Insistence on approving selected invoices
  • Regular hospitality at sporting and social events
  • Acceptance of low quality goods and services
  • Disclosure of budgets to selected supplier(s)
  • Verbal purchase orders, confirmed upon receipt of an invoice

What initial steps can you take to identify  and mitigate the risk of occupational fraud? 

We have found seeking answers to the following 7 questions provides some assurance:

  1. What are the arrangements for whistleblowing in your organisation?
  2. When did internal audit last conduct a detailed review of procurement practices?
  3. Are the buyers rotated across commodity categories?
  4. Is there a register to record acceptance of moderate hospitality?
  5. Are there financial sign-off limits for the award of contracts?
  6. Which supplier(s) are long-term entrenched in our business?
  7. How do we evaluate genuine tenders?

A Call to action #1

So do this right now: make a resolution to seek answers to the 7 questions this week. Implement something you’ve been thinking of for a while but haven’t pulled the trigger on. What’s the worst that can happen?  You find evidence assuring  you that there are policies, tools and processes in place mitigating occupational fraud.


Have you found this post helpful? We now recommend you read “Most Favoured Nations Clause- Climbing the Mountain“.


A call to action #2

No doubt your processes to engage and manage suppliers and contractors have served you well. Is it now time to confirm they are fit for purpose and capable of supporting your objectives during the next phase of your organisation’s development?

Working with you and your stakeholders including project managers and legal teams, the key activities of our proven approach include;

  • Review the current processes
  • Determine future contracting requirements
  • Propose and recommend the most appropriate process
  • Develop or revise the document/s  e.g. risk mitigation
  • Create guidance documents for internal and external use

Want to know more? For further information please call 01744 20698 or email Steve Ashcroft.

Thanks for your interest in mitigating occupational fraud.


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