Asset misappropriation fraud occurs when people who are entrusted to manage the assets of an organization steal from it. Employees in an organization may choose to use their position to steal from it through fraudulent activity. This is also known as insider fraud. This type of fraud can be committed by company directors, employees, or anyone else entrusted to hold and manage the assets and interests of an organization. Usually, the assets stolen are cash or cash equivalents, such as credit notes or vouchers. However, the fraud can extend to include company data or intellectual property.
Asset misappropriation fraud may be limited to isolated cases of expense fiddling or an employee lying about his or her qualifications to get a job. At the other end, it might involve organized crime groups infiltrating organizations to take advantage of weak processes and inadequate internal systems and controls. The definition of asset misappropriation fraud doesn’t include straight theft from an organization by insiders, such as stealing stationery or other physical assets. Ultimately, it’s the cash flow of the business that suffers.
If they’re not tackled, opportunistic one-off frauds can become systemic and spread throughout an organization, creating 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 also impact on an organization’s staff morale and reputation.
Asset misappropriation fraud could include any of the following:
- Embezzlement, where accounts have been manipulated or false invoices have been created.
- Deception by your employees.
- False expense claims.
- Payroll fraud, where payments have been diverted or fictitious, ‘ghost’ employees have been created.
- Data theft or intellectual property theft.
Protect yourself against asset misappropriation fraud
Your organization can take the following steps to help to protect itself from asset misappropriation fraud:
- vet employees thoroughly checking employee C Vs and references
- implement a whistle blowing policy
- control access to buildings and systems using unique identification and passwords
- restrict and closely monitor access to sensitive information
- impose clear segregation of duties
- consider job rotation
- regularly reconcile bank statements and other accounts
- periodically audit processes and procedures
- promote a culture of fraud awareness among staff
- adopt, and rigorously implement, a zero tolerance policy towards employee fraud
- have a clear response plan in place in case fraud is discovered.
Your organization also has a responsibility to protect other employers. Simply dismissing a fraudster enables him or her to move to another employer where he or she will most likely continue their fraudulent behavior. Consider taking part in a fraud data sharing scheme, or decide to prosecute the fraudster when the fraud is discovered.