The Herald Bulletin

Morning Update

Local Business

February 2, 2013

Cooking the books

AU teaches students to spot fraud in the workplace

ANDERSON, Ind. — Who hasn’t taken a box of paper clips or a few pens home from the company supply room?

“Big deal,” you say. “They’re just pens.”

But what if all your coworkers took something, too? All those small things — a box of thumbtacks here, a roll of toilet paper there — would add up to big loses in the company’s bank book.

Worldwide, businesses lose about $3.5 trillion every year due to frauds committed by their own employees, according to the Association of Certified Fraud Examiners.

That includes fraudulent statements, bribery, corruption and asset misappropriations, including those as seemingly innocent as pocketing a few paper clips.

Of course, “the ideal situation would be for occupational fraud to be prevented or deterred,” which would minimize losses, said Anderson University assistant professor Melanie Peddicord.

But sometimes, the only option is catching the fraudster with his or her hand in the company cookie jar.

Peddicord works with a new program at AU’s Falls School of Business.

Through the nearly 65,000-member ACFE’s Anti-Fraud Education Partnership, AU will use classroom instruction to teach occupational fraud spotting.

The university currently offers a course in forensic accounting and fraud examination. In fall, it will add a three-course concentration for accounting majors, including classes exploring the causes of white-collar workplace crime, legal issues and prevention.

The courses will aim to turn accounting and business students into detectives.

“Our popular culture has created an interest in forensics and crime investigation through the media,” said Dr. Michael D. Wiese, Director of Undergraduate Studies at the Falls School of Business. “Unfortunately, there is also a real need for accounting professionals who can hold individuals and firms accountable for criminal activities.”

They’re taught to look for the red flags that point out 81 percent fraudsters, such as living beyond their means (36 percent), those with financial difficulties (27 percent), those who are unusually close with vendors or customers (19 percent) and those with excessive control issues (18 percent), according to the ACFE report.

The Association said frauds it examined lasted a median of 18 months before being detected.

“The intent of the concentration is to prepare accounting students to better be able to prevent, detect and investigate fraud,” Peddicord said.

Although, she added, “it is important to remember that just because a red flag exists, this is not evidence that a fraud has taken place.”

According to a 2012 report from the ACFE, the average organization loses about 5 percent of its total yearly revenue due to fraud and abuse by the people it employs.

That could mean something serious, like embezzlement (illegally using company money for your own purposes), payoffs and kickbacks (where employees accept cash or other benefits in exchange for the company’s business) and skimming (when employees take money from receipts and don’t record the revenue).

In the class she teaches this semester, Peddicord said they often refer to the “Fraud Triangle.”

“For fraud to occur, there must be three elements,” she said. That includes “a perceived pressure to commit fraud, a perceived opportunity to commit fraud, and rationalization of the fraud.”

Understanding why employees commit fraud can help companies reduce opportunities for that fraud to occur, she said.   

“The main way to do this is through establishing and maintaining good internal controls within the company,” she said. “Companies can also install employee tip hotlines and follow through with discipline/prosecution of fraud cases, both of which can help deter fraud.”

Find Baylee Pulliam on Facebook, on Twitter @BayleeNPulliam or call 648-4250.

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