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Our monthly newsletter compiles relevant higher education risk-related stories from around the nation.

The past two months we've focused on topics that routinely appear in the Fraud & Ethics related section of Case in Point--conflicts of interest and the use of funds/fiduciary responsibility. This month I'd like to address the most common type of article linked in the Fraud & Ethics section: occupational fraud. Simply put, occupational fraud is an employee stealing from their employer. Education has ranked in the top ten in frequency of occupational fraud for several years, though our losses tend to be much lower than other industries.

I have the privilege of teaching a class called Fraud Examination each year in our Masters of Accountancy Program here at Auburn. As we have just finished the summer semester of this course, I thought it might be a good time to review some of the fraud basics that can help you prevent fraud in your area. Generally, there are three factors present when someone chooses to commit occupational fraud (commonly referred to as the fraud triangle): pressure, rationalization, and opportunity.

• Pressure has historically come from financial need, however, over the past few years it appears an increasing number of people who commit fraud do so simply to live a lifestyle they otherwise could not afford. I believe social media is a driving force in this becoming a pressure. I've yet to see any research that proves my theory, but the anecdotal evidence is abundant.
• Rationalization are the lies people convince themselves of to engage in the fraudulent act. Most often, it is that they are simply borrowing the money and will repay it.
• Opportunity is the final factor and occurs in a wide range of activities such as processing expenses, collecting funds, or having access to assets of value. We can decrease opportunity by having good internal controls.

In most cases, the greatest contributor to the fraud being able to occur is this: one person has complete control of a process without any oversight or monitoring. Fraud rarely occurs when strong controls and oversight are in place. Therefore, it is important to ensure key duties are separated and that oversight is routine. Small changes that improve controls can pay big dividends in fraud prevention.

Employee fraud is a risk all institutions face, and it is worth some thought about where the specific risks reside in your operations. However, as you see each month here in Case in Point, this is just one of many risks we face daily in higher education. We again invite you to review the issues that have occurred in our industry over the past month with a view toward proactive risk management.

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