This article was updated February 26, 2021.
The impact fraud can have on your organization, no matter its size, can be enormous. Not only financially, but, depending on the type and severity, it can also destroy your reputation and therefore viability.
While there are many types of fraud, there are five you should be aware that can cause the most damage.
1. Financial statement fraud
Although it’s less common, financial statement fraud can significantly damage a company. Overstating revenue, earnings and assets—or understating or concealing liabilities—are the most common activities found with this type of fraud. Often these misstatements are driven by pressure to compensate for poor information systems or inflate commissions or incentive pay.
2. Asset misappropriation
Some of the more common types of fraud fall into the category of asset misappropriation, including
Taking cash before it even enters the company’s accounting system. This is very hard to uncover because it requires finding evidence of something that hasn’t been recorded yet. It doesn’t involve a lot of sophistication to execute, making it a popular choice among those that commit fraud.
Examples include, check tampering, accounts receivable skimming, fake billing schemes, payroll schemes, fake or duplicate expense reimbursement schemes and inventory schemes.
Misuse of company assets
Another common type of asset misappropriation is the misuse of company assets. Not only is it problematic because of the unauthorized use of company assets, but it can also open up the company to significant liability.
3. Theft of intellectual property, trade secrets and personal information
As the world becomes increasingly driven by information and technology, we see an increase in the theft of intellectual property, trade secrets and personal information. This theft can be for financial gain, retribution against the company or both. Organizations should be aware that one disgruntled employee can cause immense damage to a company.
4. Health benefit fraud
Health benefit companies, such as Alberta Blue Cross, have billions of dollars flowing through their systems, making them prime targets for fraudulent activity by both providers and members. Bogus health insurance claims and incentives are ways providers and individuals commit this type of fraud.
5. Consumer fraud
Individuals and businesses targeted through false telemarketing, emails, phishing, ID theft and other scams are all victims of consumer fraud. Whether it’s a system breach or altered bank accounts for large deposits, consumer fraud is on the rise. Companies can also be victims of email phishing scams—especially spear phishing, which involves sending targeted, disguised emails that contain malicious links or using social media to target and prime individuals for subsequent fraud schemes.
How you can avoid it
Fraud can take many shapes and can impact an organization in many ways—not just financially. You should know how and where your company may be vulnerable and take the proper steps to protect against those vulnerabilities.
Create a Fraud and Irregularity Policy
This sets out the commitment of your organization to deter, detect and act upon any type of fraudulent or irregular activities in our operations. Note that your management and staff are responsible for the detection, prevention and investigation of fraud or other irregularities.
Create a Safe Disclosure Policy
This provides the ability to report good-faith concerns anonymously and without fear of retaliation through a designated Confidence Line using an independent, third-party program.
Educate your team who can safeguard your organization, together
Fraud is big business and can cost companies and their clients thousands of dollars. That’s why we suggest educating and empowering your team to help stop fraud in its tracks.
Instead of just educating your employees on fraud and how to detect it. It’s also important to open the conversation and make them feel heard. Encourage employees to share their own stories and experiences with fraud – whether that be within the organization or in the personal lives. This helps your team feel comfortable talking about fraud and more likely to report it should they come across something suspicious.
Did you know that benefits fraud costs the Canadian health care industry up to $3.6 billion every year. At Alberta Blue Cross®, we’re dedicated to cutting that number down and keeping plans sustainable. Get all your questions about benefits fraud answered on our benefits fraud website. Dive into everything you need to know about benefits fraud including how it happens, what you can watch for and how Alberta Blue Cross® can protect your plan.