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Workplace fraud a growing problem: Downs

Occupational fraud — sometimes called internal fraud — is a growing problem for businesses of all sizes, and the best way to reduce risk is to create proper management controls to account for inventory, cash and other assets, says Jim Downs, founding partner and managing director of MKD International Inc.

“You can’t totally prevent it, but you can mitigate it,” he tells AdvocateDaily.com

“You must have checks and balances built into your system. If there is merchandise, you have to make sure the proper inventory processes are in place. It comes down to accountability, and that flows from the top management of the organization down to all employees,” he says. 

Businesses need systems in place so when a piece of equipment is purchased, for example, there is a paper trail to show it was used for its designated purpose, Downs says.

Occupational fraud is a “pervasive threat that exists in any economic system and has the potential to impact any organization regardless of size, type or industry,” says the Association of Certified Fraud Examiners, a Texas-based organization with about 80,000 members that offers fraud training and education. 

The association defines occupational fraud as the “use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.”

Downs says fraud can have a widespread impact on a company.

“Sometimes when employees see their co-workers getting away with fraud, they start doing it as well because it appears to be easy money,” he says. 

“Businesses have to create a deterrence factor to minimize fraud. If people think they won’t get caught, some will do it. They might think, ‘If Bill can do it, then I can do it because I could use the extra money too.’”

Employers sometimes learn about nefarious activity occurring within the organization through employees, Downs notes. 

MKD is often hired by corporations, small businesses and public institutions to investigate employee fraud. The firm will provide evidence, often photographic, that can be used in either a criminal and/or civil case against the individual, and for grounds to fire the person responsible. 

“We are called in to do surveillance on those suspected of the fraud and that’s how the employee often gets caught,” he says. “But it’s up to the employer to check its own inventory. Sometimes an internal audit will determine if there is a problem."

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