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Who commits workplace fraud? Surprisingly, the culprits are often older, long-term employees.

For businesses ravaged by theft in the workplace, fraud is a real-life nightmare that is difficult to overcome.

Take, for example, the small firm owners who discovered hundreds of thousands of dollars in missing assets from their balance sheet. How could it happen? A trusted bookkeeper, with more than 20 years of loyal service, was the only employee who had access to funds. The owners assumed that someone, probably a young hacker, must have sabotaged their system.

They were wrong. The trusted bookkeeper, the loyal employee, had stolen hundreds of thousands of dollars from the company, using only the access provided as part of the job. The owners then faced a decimated business and an uncertain future because of a 60-year-old who had stolen while under their watch.

A new survey by the Association of Certified Fraud Examiners (CFEs) sheds new light on where business owners should focus their attention in efforts to prevent fraud inside their workplace. The message now is don't fear the employee with the new degree and the iPod--think older and more experienced.

Here are some of the facts that should make you think about taking steps to protect your business: The latest CFEs report shows that fewer than 20 percent of frauds are committed by workers younger than 30. In fact, nearly half of perpetrators are older than 40. Two-thirds of fraud perpetrators act alone.

The really bad news for business owners is that the longer you employ your workers, the worse fraud potential you face. In fact, fraud by employees who have been with the company for more than 10 years has a median loss of $171,000. For those who have only been with a company one or two years, the median loss is only $50,000.

So what is a concerned business owner to do? Take action steps now to ensure protection. The most simple fraud prevention tool is a mechanism to encourage and investigate tips from employees. The CFEs report reveals that of the most costly frauds surveyed last year--nearly 43 percent were revealed through employee tips. On average, those frauds would have been twice as costly if not for the tips.

Many studies conclude that the most effective way to cultivate and follow up on tips is through a confidential, 24-hour hotline operated by a third party. The key for private companies is to make sure the hotline is operated professionally and properly.

Additionally, the hotline should be accessible to suppliers and customers, in addition to employees. Management must remain committed to take every tip seriously and investigate every allegation, to assume employees that the hotline is effective and important.

As always, business owners should always be aware of potential loopholes in their financial systems that could present opportunities for fraud. A Certified Fraud Examiner can assist with preparing a preventive plan to tighten your controls and give you more of the peace of mind every business owner desires.

RELATED ARTICLE: Facts about fraud

* 68 percent of frauds are committed by workers, compared to only 12 percent by owners and executives.

* Fraudulent schemes committed by men cost business more than twice as much as those committed by women.

* Nearly half of frauds are committed by workers older than 40.

* Most perpetrators have no previous criminal record.

RELATED ARTICLE: How many would 'blow the whistle?'

A study conducted for Ernst & Young LLP in 2002 found that one in five U.S. workers were personally aware of fraud in their workplace. While 80 percent of those surveyed said they would be willing to turn in a colleague thought to be committing a fraudulent act, only 43 percent actually had done so.

When asked which specific fraudulent acts employees were aware of in their workplace, 37 percent reported "theft of office items." Other types of fraud witnessed included "claiming extra hours worked" (16 percent), "inflating expense accounts" (7 percent) and "taking kickbacks from suppliers" (6 percent).

Women were more likely than men to report fraudulent activities, and older employees were significantly more likely to be willing to report a fraudulent act than younger employees, the survey found.

When asked to define the type of individual more likely to be involved in fraudulent activities, the majority of respondents described an under-35 male who had been with an organization for more than three years.

Source: SmartPros Ltd.

Chris Whall is director of The Whall Group, a Gold-level member of the Detroit Regional Chamber.

COPYRIGHT 2005 Detroit Regional Chamber
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Article Details
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Title Annotation:Small Business CENTRAL
Author:Whall, Chris
Geographic Code:1USA
Date:Apr 1, 2005
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