What does asset misappropriation fraud involve?
Asset misappropriation fraud involves third
parties or employees abusing their position to
steal from an organisation through fraudulent
activity.
This type of fraud can be committed by company directors or
anyone else entrusted to hold and manage the assets and interests
of an organisation or its employees. The different types of asset
misappropriation fraud include:
- Embezzlement by manipulating accounts or
creating false invoices
- Deception by employees
- False expense claims
- Payroll fraud by diverting payments or
creating fictitious ghost employees
- Data theft and intellectual property
theft.
Typically, the stolen asset is cash or cash equivalents (credit
notes or vouchers). However, the fraud can extend to include
company data or intellectual property.
The definition of asset misappropriation fraud excludes
straight theft from an organisation by insiders. For
example: stealing stationery or other physical assets.
How does asset misappropriation fraud work?
At one end of the scale, asset misappropriation fraud
may be limited to isolated cases of
expense fiddling or an employee exaggerating his
or her qualifications to get a job.
At the other end of the scale, this type of insider fraud might
involve organised crime groups infiltrating
organisations to take advantage of poor processes and inadequate
internal systems and controls.
Ultimately, it is the cash flow of the business
that suffers. According to CIFAS, the UK’s Fraud
Prevention Service, it is estimated that the cash flow in nearly a
quarter of UK small businesses is under threat from losses caused
by staff theft and fraud.
If they are not tackled, opportunistic one-off frauds can become
systematic and spread throughout an organisation to create a
culture of theft and fraud. When this happens, fraudsters think
their actions are acceptable and fail to make the distinction
between company funds and their own funds.
Apart from the direct impact of lost funds, asset
misappropriation fraud can impact on an organisation’s staff morale
and reputation.
What should I do?
As an employer
If the asset misappropriation fraud is
continuing, you should consider initiating a
criminal investigation by reporting it to
the police while preventing further losses by
immediately suspending the employee(s)
involved.
As an employer, you may consider that the fraud is minor.
Although it may still be a criminal offence, you may seek to
recover stolen funds and start disciplinary or dismissal
procedures.
Whatever you decide, your organisation should try to estimate
its direct losses and determine whether the fraud is being
replicated by other people. This would indicate a systematic
failure across your whole organisation.
Your organisation can seek to protect itself from asset
misappropriation fraud by:
- Employee vetting by thoroughly checking
employee CVs and references
- Implementing a whistle-blowing policy
- Controlling access to buildings and systems
using unique identification and passwords
- Restricting and closely
monitoring access to sensitive information
- Imposing clear segregation of duties
- Considering job rotation
- Using tiered authority and signature levels
for payments
- Regularly reconciling bank statements and other accounts
- Periodically auditing processes and
procedures
- Promoting a culture of fraud awareness among
staff
- Adopting and rigorously implementing a zero tolerance
policy towards employee fraud
- Having a clear response plan in place in case
fraud is discovered.
Your organisation also has a responsibility to other employers.
Simply dismissing a fraudster enables him/her to move to another
employer unchallenged. Here, he/she will most likely continue their
fraudulent behaviour. Therefore, your organisation should
take action to ensure that, where the offence is
proven, the possibilities of this happening are limited. You can do
this either by participating in a fraud data sharing
scheme or by deciding to
prosecute when the fraud is discovered.