EMPLOYEE FRAUD & EMBEZZLEMENT



Employee Fraud/ Embezzlement in Small Businesses

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Abstract

During 19th Century, employee fraud or embezzlement in small businesses grasps the interest of sociologists. Since, U.S. Chamber of Commerce study reported that employee fraud is one of the prime factors of business failure. Research findings show that opportunity, pressure/ incentive, and rationalization/ attitudes are key reasons of employee fraud and embezzlement. In this paper, the impact of fraud/ embezzlement on business is examined. Moreover, the researcher inspects the role of prevention of employee fraud, as well as proposes prevention as the most effectual means to decrease business losses.    

Employee Fraud/ Embezzlement in Small BusinessesIntroduction

Employee fraud is in essence the exploitation of job or misapplication of the organizational resources or assets of the employer. In United States, business organizations face a loss of 5 percent of their yearly income because of fraud. Approximately $652 billion of Gross Domestic Product (GDP) is pulled down because of employee fraud, per annum. A study was conducted by ACFE (Association of Certified Fraud Examiners) and accounted the average loss faced by businesses is because of employee fraud was $159,000. Organizations with less than 100 employees undergo disproportionate employee fraud from work-related fraud; the average loss organization face from a single scheme of fraudulent is $190,000. This is not solely because of absence in anti-fraud measures and internal controls; however, the concentrated authority and nature of small business structure typically linked with small businesses (Bressler & Bressler, 2007).    

Typically, small businesses can do a better job in detecting employee fraud. Less than 10 percent of small businesses had a system of anonymous reporting fraud within the organization and less than 20 percent had a department of internal audit or training carried out the fraud for managers and employees. Frauds in small business are usually detected accidentally rather than other means.

However, small business can be at risk to fraud as they frequently do not have protective measures in a workplace to detect and prevent criminal activities. Previous to Internet offense, a study was conducted in small business administration of United States, and results showed that out of 400 companies, 13 percent of small businesses are victims of employee fraud. Moreover, 48 percent of small businesses do not have security measures; therefore, numerous employee frauds went unreported.

Literature Review

Types of Crimes

Offenses against small businesses by employees may include stealing of equipment, merchandise and inventory, money laundering, fraud, skimming of cash, payroll fraud, writing company checks, customer identity theft, credit card fraud, falsifying revenue reports, intellectual property theft, processing fraudulent invoices and overstated expense reports.

There are some widespread reasons that lead employees to embezzlement/ fraud. First is the incentive - usually in the shape of some kind of pressure. Pressure can be because of inadequate cash that are usually related to additional money required for an adulterous affiliation. On the other hand, financial pressure can be because of drug addiction, gambling debts and bills. Validation takes place when an employee gives reason for their deeds ...