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Failure to recognize or respond to workplace fraud costs U.S. businesses millions each year. While circumstances leading to fraudulent behavior vary widely among companies, recent studies may reveal why some institutions ignore illegal activity – even when it’s happening in plain view.
Here are some reasons companies turn a blind eye to expensive, systemic insider fraud:
Trust & Seniority
Let’s say you suspect a senior colleague may be guilty of workplace fraud. What if that person has already built trust with your department for over a decade? What if you feel at risk for professional or personal reprisal were you to report your suspicions?
What if the suspect is your boss?
According to a recent Symantec report on insider intellectual property (IP) theft, a majority of IP thieves are males in their mid-30s. Their positions are high enough in the corporate value chain that their own signatures regularly appear on IP agreements, and many are managers.
Similarly, a 2011 global fraud analysis by KPMG finds that fraudsters have typically been with their employer for over 10 years with more than half in upper management or board positions. With so many guilty parties in positions of authority, it’s no mystery why many of their colleagues choose to ignore dubious activity.
Ignorance of Warning Signs
Of course, not every fraudster operates in the company’s upper echelons. What’s more, many instances of unreported fraud may not be intentional but due instead to a lack of knowledge about fraud’s warning signs.
KPMG’s report names certain “red flag” behaviors that could indicate an employee is committing insider fraud. The employee’s colleagues simply must be aware of what those behaviors are. Some of them include:
• Maintaining exclusive relationships with vendors
• Refusal to take leave or time off for holidays
• Unexpected disappearances from the office
• Not producing certain records or information upon request
• Excessive lifestyle for his or her income
• Developing a serious addiction to alcohol, drugs, or gambling
A better understanding of these behaviors by all employees – especially those in HR departments – could go a long way toward averting future fraud prevention failures.
Lack of Prevention Policies
The absence of effective fraud protocols is another big reason companies brush aside fraud prevention failures.
Developing and enforcing fraud prevention policies isn’t just a formality – it’s an investment in the continued prosperity of your company. The specifics of that policy will depend on the types of fraud to which your organization is most vulnerable, and many may choose to build enterprise fraud management software into their long-term strategies.
After all, software may very well identify suspicious activity that employees – for fear of reprisal or otherwise – fail to report to management.
Creating teams of legal and HR experts, implementing fraud education programs for employees, and a performing a thorough evaluation of your unique fraud risks are preventative measures all organizations should take.
