THE SMALL BUSINESS FRAUD
Introduction to Employee Fraud
Small Business Fraud
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PART 1: INTERNAL FRAUD THREATS
I. INTRODUCTION TO EMPLOYEE FRAUD
The Shocking Cost of Employee Theft and Fraud
Occupational fraud is defined as the use of one‘s occupation for personal enrichment through the
deliberate misuse or misapplication of the organization‘s resources or assets.
Simply stated, occupational fraud and abuse occurs when an employee, manager, or executive commits
fraud against his or her employer. Occupational fraud and abuse is roughly a synonym for terms like
employee fraud or embezzlement, although technically, the term occupational fraud and abuse is more broad and
better reflects the full range of employee misconduct through which organizations lose money.
The threat of occupational fraud looms over every business or public agency, regardless of its size,
stature, or function. It is safe to say that if you have employees, at some point in time some form of
occupational fraud will victimize you. These are not crimes that only happen to the company down the
street; they occur in every organization (including yours) and employees at every level commit them —
from top executives down to entry-level clerks. Research indicates that levels of occupational fraud and
abuse are staggeringly high, both in their cost and in their rate of occurrence.
In 2003, KPMG released the results of its third U.S. Fraud Survey. The survey drew on interviews of
more than 450 executives in medium-sized and large organizations across industries and in state and
federal government agencies. According to the results of KPMG‘s 2003 Fraud Survey, organizations are
reporting more experiences of fraud than in prior years and are taking concerted actions to deal with it.
Seventy-five percent of companies surveyed reported that they experienced an instance of fraud — 13
percentage points more than in their 1998 survey.
Their survey showed that