In light of recent allegations of fraud at La Salle University, businesses should evaluate how easily they could become the victim of occupational fraud (that is, fraud committed by an organization’s own employees). News reports indicate that the university’s former director of auxiliary services, who had been employed by La Salle since 1984, allegedly set up a fictitious food company through which he authorized payments from the university. The fraudulent scheme is believed to have begun 20 years ago, and involve several million dollars. Officials discovered the fictitious company thanks to a recently-introduced invoice-control system. Megan L. Becwar and Stephen J. Scherf of Asterion, Inc., a leading provider of financial and economic consulting services focused on forensics, valuation and intellectual property, stated “Business and non-profit organizations need to increase their fraud deterrence procedures to minimize their organizations’ susceptibility to fraud and abuse.”
According to The Association of Certified Fraud Examiners’ 2010 Global Fraud Study , the typical organization is estimated to lose five percent of revenue annually to occupational fraud. The study found that the frauds lasted a median of eighteen months before being detected, and that median losses were $160,000 per case, although nearly one-quarter of the cases discovered involved losses of at least $1 million. Frauds committed by high-ranking (owner/executive) perpetrators were found to be three times as costly as those committed by managers and nine times as costly as employee frauds.
According to news reports, La Salle officials became aware of the fraud after 20 years because they implemented new invoice-control procedures. “Evaluating and redesigning controls to include simple and effective safeguards can greatly reduce an organization’s risk profile,” stated Becwar. “In our experience many small to mid-size businesses and non-profit organizations fail to consider these types of controls, many of which can be implemented at little to no cost,” added Scherf. “Until it happens to them, many organizations just refuse to believe that they may become a victim of fraud.” “Although there are specific controls that can be put in place, setting a proper tone at the top and encouraging confidential reporting of suspected fraud both internally and externally can also greatly enhance an entity’s ability to reduce fraud exposure,“ stated Becwar. “Implementing proper controls will not eliminate fraud, but median losses for organizations with appropriate controls in place have been found to be up to 60 percent lower,” added Scherf.