DEVELOPMENTS With these crimes, literally anyone in an organization is a potential perpetrator. Criminals range from hourly employees all the way up to senior management, including the CEO. The size of loss correlates with annual income level, tenure, age, education, and the level of collusion involved in the crime. Among perpetrators, 87% were first-time offenders; 36% were considered “living beyond their means,” and 27% had been experiencing financial difficulties. However, more often than not, the perpetrator has done the same thing at one or more former employers. Perhaps the most significant potential financial remedy for occupational crime and fraud is crime insurance. If your company has insurance, review the adequacy of coverage and limits. In addition, see if you have “cost/fee coverage,” which can pay for the use of outside providers to help investigate a crime. Until they are victims, many businesses don’t realize they are woefully under-insured and lack cost/fee coverage.
FRAUD RISK FACTORS To help organizations assess their potential exposure to occupational crime or fraud, the Association of Fraud Examiners has identified some key considerations, often called the “triangle” or “three legs of fraud.” First, consider the impetus to perpetrate a fraud. The business driver having to “make a number” might lead one to manipulate transactions. And there’s the personal motivation, usually financial gain or desperation, to engage in theft against the employer.
Another factor is opportunity: Does a potential perpetrator have access to assets? Are controls inadequate or non-existent? Corporate culture plays a part as well. Even in a strong outward culture of integrity, the feeling may be different within specific departments or functions. Is financial aggressiveness or risk-taking part of the organization’s culture or a desired attribute for a certain class of employees?
6 May/June 2013 • CONVERGE • www.HospitalityLawyer.com