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Ways to Protect Your Business from Fraudsters and Thieves

Updated: Sep 9, 2022

"Don’t bite the hand that feeds you."

The above quote is applicable today particularly in business when the employees steal from their employers. Recently, a popular radio broadcaster and TV personality in the Philippines, Anthony Taberna revealed that one of his trusted employees allegedly stole a large amount of cash from his coffee shop. They discovered what their worker had done to their coffee shop called “Ka Tunying Café”. He stressed that the incident was a huge blow to their family and their finances as the treatment of his daughter who suffers from leukemia is not cheap. Mr. Taberna also admitted that if the problem is not solved in time, he may have to shut down their coffee shop.

This is the reason why every organization must have a plan to prevent and detect fraud from within the organization called occupational 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. This type of fraud occurs when an employee, manager, or executive commits fraud against his or her employer.

In April 2020, the Association of Certified Fraud Examiners released the 2020 Report to the Nations on the global studies and effect of occupational fraud. It examined the 2,504 cases of occupational fraud reported from 125 countries throughout the world – including the 198 cases that occurred in the Asia-Pacific region. The median loss of occupational fraud in the Asia Pacific Region was US$195,000.

To understand how to prevent fraud, we must first understand the types of fraud. The three (3) major types of fraud can each devastate a business financially and reputationally. Those are asset misappropriation, corruption, and financial statement fraud.

Of the three-primary type of occupational fraud, asset misappropriation is by far the most common, occurring in seventy-four percent (74%) of the cases. However, they are also the least costly, causing a median loss of US$112,000.

The scheme involves an employee who steals or misuses the organization’s resources, theft of cash, billing, or inflated expense reports.

The second major type of occupational fraud is corruption. Corruption cases often deal with senior management. In fact, seventy percent (70%) of corruption cases were perpetrated by someone in a position of authority such as managers and owners. It involves an employee who misuses his or her influence in a business transaction to gain a direct or indirect benefit, bribery, or conflicts of interest. Fifty-one percent (51%) of the cases in the study involved some form of corrupt act. These schemes resulted in a median loss to the victim organizations of US$239,000.

The third major type of occupational fraud is financial statement fraud. It is the least common but most costly form of occupational fraud. It occurred in fourteen percent (14%) of the cases and caused a median loss of US$3,000,000.

According to the latest surveys conducted by the Association of Certified Fraud Examiners, the top six red flag behaviors have not changed since their 2008 studies. While eighty-five percent (85%) of fraudsters displayed at least one of the following behaviors, fifty percent (50%) exhibited multiple red flags such as:

1. Living beyond one's means.

2. Financial difficulties.

3. Unusually close association with a vendor or customer.

4. Unwillingness to share duties.

5. Recent divorce or family problems.

6. A general “wheeler-dealer” attitude.

While the presence of these red flags does not imply that fraud is being committed, understanding and recognizing the behavioral red flags displayed by fraud perpetrators can help organizations detect fraud and mitigate losses.

There are many ways to detect fraud in the organization. Among them are through the tip and internal audit. However, prevention is better than cure. Thus, business owners and leaders must have deliberate plans to prevent fraud such as:

1. Meeting with the board and senior management and showing the facts.

2. Set the proper tone from the top.

3. Review the top internal control weaknesses.

4. Create a plan and align the resources in your organization to take action.

5. Execute and review the plan and its effectiveness annually.

The above fraud prevention may look complicated for a small and start-up businesses including restaurants, cafes, canteens, and the likes. So, I suggest doing what I called the ABC's of financial control concepts to protect yourself and your business from theft, embezzlement, and fraud as follows:

1. A - Apply segregation of duties.

Segregation of duties is usually a challenge for small businesses due to budget constraints, however, the reward exceeds the benefit. It must always have two (2) unrelated parties involved in any money or financial assets that flow or goes in or out of your business. This will create a check and balance and will significantly mitigate risk of fraud because it would require collusion for a serious theft or fraud to happen.

2. B - Be vigilant and watch out for the red flags.

As the business owner or manager, it is your responsibility to actively and regularly review the financial records of your business or what was entrusted to you. You may have financial staff who do most of the work, but you still need to pay close attention to it. This is one of the reasons many businesses failed not because they are not profitable but because of theft, embezzlement, and fraud. Spot-check reports and highlight any line item or a general question you might have. Follow up with your staff to get answers. If the answers don't satisfy you, dig deeper. Listen to that still, small voice inside that sounds the alarm or lookout for the red flags.

3. C - Create an audit trail.

Having a permanent and sequential record of check, invoices, and requisitions will make it much more difficult for a person to cover up the theft. Having an audit trail is not enough to prevent and detect fraud but being clear on who is accountable to the audit trails and having a regular independent audit with an element of surprise will make it effective.

If you will follow the above three (3) simple or ABC's financial control concepts, you'll significantly reduce the risk of fraud.

Occupational fraud is like a deadly venom from snake bites that could cause organizational death and loss of livelihood. No one should bite the hand that feeds us but the reality is we live in a world where good and evil co-exist. Thus, not only that you must not commit fraud but you must apply the above antidotes for fraud to protect your business from fraudsters or thieves.


The 3 Major Types of Occupational Fraud and How to Prevent Them by Olivia Berkman.


This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of MSCS PrimeGoods, Inc.

Russel Magnaye is the President of MSCS PrimeGoods, Inc. He is an entrepreneur and Certified Public Accountant (CPA) & Certified Fraud Examiner (CFE) by profession.

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