Studies have found a number of patterns in employee fraud. One finding has been that the fewer employees who are involved with financial transactions, the greater the risk for fraud or misuse of public funds. In addition, when fraud occurs, studies have shown a direct correlation between the length of time an employee has been employed by an entity and the size of the loss. An employee’s tenure is likely related to both trust and opportunity. The more trust an entity places in an employee, the greater the person’s opportunity to commit fraud. Long-term employees may also be the most familiar with gaps in the entity’s operations and controls.
Segregation of duties and oversight are essential to deterring fraud. Public entities need to spread accounting and banking duties among multiple employees. When that is not possible due to the size of the public entity, elected officials may need to become involved in the process. For example, someone other than the person writing checks should receive and review unopened monthly bank statements. In a small entity, an elected official may need to perform that function.
For more information on employee fraud, see the most recent study by the Association of Certified Fraud Examiners, Inc., "Report to the Nations on Occupational Fraud and Abuse", copyright 2012. To see the key findings and highlights of the report, which link to the entire report, go to:
The link will bring you to an outside website.
Date this Avoiding Pitfall was most recently published: 10/01/2010