By Alvin Wolcott, CPA

Financial pressures have increased for individuals during this recession, and in turn, organizational fraud has grown more prevalent.  As companies are forced to cut costs and downsize their workforce, internal control systems are left vulnerable.

According to a survey conducted by the Association of Certified Fraud Examiners (ACFE), employee embezzlement tops  the list of the most common type of organizational fraud.  Additionally, 70 percent of the survey respondents believe the incidence of employee embezzlement will continue to increase as the financial crisis deepens.  For employees, there are three contributing factors that lead to fraud within an organization: increased financial pressure, perceived opportunity, and an ability to rationalize fraudulent behavior.

To gain control of the situation, the ACFE suggests that business owners be proactive with employee issues by being alert to their needs and providing support as necessary. Establishing and maintaining  a strong internal control system is the next step to reducing fraud;  simple separation of duties creates more checks and balances, and can help reduce perceived opportunities. A strong internal control system also sends the message to employees that fraudulent activities are visible to the organization and will be detected. By reducing employee financial pressures, and perceived opportunities the employee's ability to rationalize fraudulent behavior should be minimized. If the employer maintains and emphasizes a strong ethical foundation for the business the employees are unlikely to rationalize fraudulent behavior. 

Please contact us if you would like to discuss how to improve your company’s internal controls.