Partner-Advisory Leader and International Liaison, Kreston ATC Chile and Kreston Global Audit Group Business Director
Drawing on his extensive 27-year career, Ricardo has established himself as an expert in corporate fraud, external and internal audit, and risk advisory services. He currently holds the positions of Advisory Lead Partner at Kreston ATC Chile and Kreston Global Audit Business Director. During his career, Ricardo worked at Ernst & Young (EY) in Chile, Canada, and Argentina, where he held various leadership roles, most notably serving as an Audit and Forensics Partner for ten years. During this time, he successfully led some of the firm’s most prominent international clients across a wide range of industries.
Additionally, Ricardo holds a number of distinguished qualifications, including being a Certified Public Accountant (CPA) in the United States, Chile, and Argentina, a Certified Fraud Examiner (CFE), and holder of a Master’s in Business Administration (MBA). In addition to his business career, he is also a respected university professor and researcher, with a specific focus on occupational fraud. He has even authored a book on the subject, solidifying his status as an expert in the field.
How to prevent occupational fraud
February 27, 2023
The monetary impact of occupational fraud can be significant, with losses ranging from a few thousand dollars to many millions of dollars. The Association of Certified Fraud Examiners (ACFE) estimates that the average organization loses 5% of revenues to fraud each year. This equates to billions of dollars lost each year due to fraud.
What is occupational fraud?
Occupational fraud refers to fraudulent activities committed by individuals within an organization, typically employees or those in positions of trust, with the intent to obtain some financial or personal benefit. It can take many forms, including but not limited to embezzlement, bribery, payroll fraud, expense reimbursement fraud, and financial statement fraud.
Occupational fraud can be committed by individuals in any type of organization, including corporations, small businesses, government agencies, and non-profit organizations.
Large organizations are often more vulnerable to occupational fraud due to their complexity and the sheer volume of transactions that take place, but small organizations can also be affected. In fact, small organizations may be particularly vulnerable because they often have fewer resources and less effective controls in place to detect and prevent fraud.
How does it impact your organization?
Occupational fraud can be damaging to organizations, as it often goes undetected for long periods and results in significant financial losses.
In addition to the monetary losses suffered by organizations because of occupational fraud, there are also several non-monetary consequences that can be just as damaging. Some of the non-monetary consequences of occupational fraud include:
• Reputational damage: Occupational fraud can harm an organization’s reputation, particularly if the fraud is made public. This can lead to a loss of trust among customers, employees, and other stakeholders.
• Decreased employee morale: Fraud can cause employees to lose faith in their employer and question the integrity of the organization. This can lead to decreased motivation, engagement, and overall job satisfaction.
• Legal consequences: Organizations that are the victims of occupational fraud may face legal consequences, including lawsuits and fines.
• Difficulty in attracting and retaining employees: Organizations that have a history of occupational fraud may find it more difficult to attract and retain top talent.
• Difficulty in securing funding: Investors and lenders may be less likely to provide funding to organizations that have a history of occupational fraud.
• Increased scrutiny from regulatory bodies: Organizations that have suffered from occupational fraud may be subject to increased scrutiny from regulatory bodies, which can lead to costly investigations and further reputational damage.
What are the main types of occupational fraud schemes?
There are many types of occupational fraud schemes, but some of the most common include:
• Embezzlement: This is the unauthorized use of an organization’s assets for personal gain. This can include diverting funds, misusing company credit cards, or taking company property.
• Payroll fraud: This occurs when employees inflate their hours or salaries, create fake employee accounts, or make unauthorized wage or salary payments.
• Expense reimbursement fraud: This involves submitting false or inflated expenses for reimbursement, such as falsifying receipts or claiming expenses for personal items.
• Financial statement fraud involves manipulating financial statements to present a false picture of the organization’s financial performance, such as overstating revenue or expenses.
• Bribery and corruption: This involves offering or accepting bribes in exchange for favourable treatment or a business advantage.
• Procurement fraud: This involves using the purchasing process for personal gain, such as accepting kickbacks, falsifying invoices, or using insider information.
• Cybercrime: This involves using technology to commit fraud, such as hacking into computer systems, stealing sensitive information, or committing identity theft.
What is a Comprehensive Anti-Fraud Program?
The design and implementation of an effective and comprehensive anti-fraud program is essential for organizations to minimize the risk of occupational fraud and promote a culture of ethics and integrity.
An Integral Anti-Fraud Program is a comprehensive approach to preventing, detecting, and responding to fraudulent activities within an organization. It includes a set of policies, procedures, and processes designed to mitigate the risk of occupational fraud and promote ethical behaviour.
An integral anti-fraud program typically includes the following components:
• Fraud risk assessment: A risk assessment to identify the potential for fraud within an organization and prioritize areas for improvement.
• Fraud prevention policies: Policies and procedures to prevent fraudulent activities, such as background checks, separation of duties, and regular training.
• Fraud detection and investigation: Procedures for detecting and investigating suspected fraud, including the use of data analytics and regular audits.
• Reporting and response: A system for reporting suspected fraud and a plan for responding to incidents of fraud, including communication with law enforcement, if necessary.
• Training and education: Regular training for employees on the importance of ethical behaviour and the consequences of fraudulent activities.
• Monitoring and continuous improvement: Ongoing monitoring of the anti-fraud program to ensure its effectiveness and continuous improvement.
Some of the reasons why an integral anti-fraud program is important include:
• Protects the organization’s assets: An integral anti-fraud program can help prevent and detect fraudulent activities, protecting the organization’s assets and financial stability.
• Increases accountability: An anti-fraud program can help hold employees accountable for their actions and create a culture of transparency and ethical behaviour.
• Improves employee morale: An effective anti-fraud program can improve employee morale by creating a work environment that values honesty and integrity.
• Enhances reputation: An integral anti-fraud program can help protect an organization’s reputation by demonstrating its commitment to ethical behaviour and reducing the risk of public scandals.
• Increases customer trust: Customers are more likely to trust an organization that has demonstrated its commitment to preventing and detecting fraudulent activities.
• Supports compliance with laws and regulations: Many laws and regulations require organizations to have anti-fraud programs in place. By implementing an integral anti-fraud program, organizations can demonstrate their compliance with these requirements.
• Improves decision-making: An anti-fraud program can provide an organization with better data and information to make informed decisions, reducing the risk of fraudulent activities.
How can Kreston Global help you?
Kreston Global member firms have experts who have been trained to detect and prevent fraud and can help your organization with fraud prevention by using our expertise to implement a comprehensive anti-fraud program and to identify vulnerabilities in your organization’s systems and processes.
Some of the ways that we can help with fraud risk management include:
• Conducting a fraud risk assessment: We can identify the potential for fraud within your organization and recommend steps to mitigate the risk.
• Developing fraud prevention policies: We can work with your organization to develop policies and procedures designed to prevent fraudulent activities, such as separating duties and conducting regular background checks.
• Implementing anti-fraud controls: We can help your organization implement anti-fraud controls, such as data analytics, that can help detect fraudulent activities.
• Providing training and education: We can provide your employees with training and education on the importance of ethical behaviour and the consequences of fraudulent activities.
• Conducting investigations: In the event of suspected fraud, we can use our expertise to conduct investigations and gather evidence to support legal or disciplinary action.
• Supporting compliance: We can help an organization comply with laws and regulations related to fraud prevention, such as the Sarbanes-Oxley Act, Foreign Corrupt Practices Act (FCPA), UK Bribery Act, Corruption of Foreign Public Officials Act (CFPOA), and others.
If you would like to discuss fraud prevention, please get in touch.