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Do You Trust Your Employees?

Occupational fraud can cost companies big money, but is preventable

Company owners and managers may hesitate to admit it, but fraud could be taking a bite out of their business. It is seldom a sophisticated scheme; many are simple, obvious thefts. Most cases are perpetrated by a trusted employee, for trust is the operative word when discussing occupational fraud.

Occupational fraud takes many forms and occurs in all types of businesses. The typical organization loses 5 percent of its annual revenues to fraud, according to the 2012 “Report to the Nations on Occupational Fraud and Abuse” from the Association of Certified Fraud Examiners (ACFE) in Austin, TX. That’s big money—especially for small and medium- sized businesses—and it can represent significant losses to narrow margin companies in the produce industry.

Although ACFE president Jim Ratley believes fraud is preventable, a controller with a Canadian fruit wholesaler (who asked to not be identified) says keeping fraud at bay is not so easy. “The produce industry is based on trust, and it is vulnerable to fraud because trust is easy to take advantage of.” In addition, given its fast pace and fluctuating prices, the produce business is particularly susceptible to collusion—so internal controls are difficult to enforce, especially on the sales floor.

Defining Occupational Fraud

Occupational fraud can encompass a broad range of schemes, all of which will ‘enrich’ an employee through deliberate misuse or abuse of an employer’s resources or assets. According to the ACFE report, the top three types of fraud affecting businesses involve asset misappropriation, financial statements, and corruption—however, although these were considered separate categories, there was some overlap where more than one type of fraud was reported at the same time.

Asset Misappropriation

Asset misappropriation is stealing or misusing an employer’s resources and includes theft of cash, manipulated billing, and expense account fraud. It is the most common type of occupational fraud, representing 86.7 percent of reported cases in 2012, but is the least costly with a median loss of $120,000. It is also a crime of opportunity with access as the key factor, ranging from stealing office 
supplies and petty cash to check tampering for payroll or cash disbursements.

Financial Statement Fraud

As its name implies, financial statement fraud is the intentional misstatement or omission of information from an organization’s financial reports, such as recording false revenue, understating expenses, or inflating reported assets. Though this type of fraud occurs the least, at only 7.6 percent for 2012, it was the most costly with a median loss of $1 million.


Corruption is the misuse of an employee’s influence to gain direct or indirect benefits from business transactions. Though the frequency was less than asset misappropriation, corruption occurred in a third of 2012’s reported fraud cases with a median loss of $250,000 per occurrence.