Is occupational fraud something that happens in higher ed? Unfortunately, news headlines suggest it happens all too often. But what is occupational fraud, and what does it look like in a university environment? Knowing the answers to these questions will heighten your awareness of what can happen and help you proactively manage risk in your area of influence. This post is the first in a planned series about the topic.
What is Occupational Fraud?
The Association of Certified Fraud Examiners (ACFE) defines occupational fraud as "using one's occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization's resources or assets."
The ACFE's most recent report1 provides more detail:
"Occupational fraud is very likely the most costly and common form of financial crime in the world. The term occupational fraud refers to frauds that are committed by individuals against the organizations that employ them. There are two key reasons why this type of crime is so prevalent.
"The first is that any organization with employees must, to some extent, entrust those employees with access to or control over its assets, whether that means keeping its books, managing its bank accounts, safeguarding its inventory, etc. It is this very trust that can make organizations vulnerable to occupational fraud. Because all frauds, at their heart, are based on breaches of trust.
"The second reason occupational fraud is so costly and common is that there are so many people in a position to commit these crimes … a large majority of whom will never steal or abuse the trust of their employers.
"But if even a tiny percentage of these individuals cross the line, the result is millions of occupational fraud schemes being committed annually."
This small percentage of people is responsible for the unflattering headlines no university wants!
What Does Occupational Fraud Look Like?
The ACFE has three main categories of occupational fraud:
- Asset misappropriation
- Financial statement fraud
Corruption includes exploiting a conflict of interest, bribery, illegal gratuities, and economic extortion.
Asset misappropriation can pertain to either cash or property and equipment.
The misappropriation of cash can be the theft of currency on hand, cash receipts coming in,2 or the making of fraudulent disbursements through various schemes. The misappropriation of property and equipment can be either the misuse or outright theft of an asset.
Financial statement fraud typically includes manipulating an organization's net income or net worth for nefarious purposes. In a university setting, fraudulent reporting could also encompass falsifying research results or reports to funding agencies.
In future posts, we'll review various categories and subcategories of occupational fraud by looking at what went wrong at other colleges and universities and the control weaknesses contributing to the incidents.
2 Section 13.01, Deposit of Cash Receipts, defines "cash receipts" as including:
Currency, coins, checks, bank drafts, money orders, traveler's checks, cashier's checks, foreign drafts, payment card receipts, and wire transfers received electronically, by mail, or in person.