Case in Point: Lessons for the proactive manager

Volume 16 Number 03 | March 2024

This month we continue our review of the events of 2023 with a focus on the Fraud & Ethics Category. This category has historically been dominated by occupational fraud – situations where employees use their position to commit misappropriation. Occupational fraud continues to lead the way in 2023; however, research misconduct was second by a substantial margin. If I had to speculate as to the reason research misconduct increased, my guess is increased scrutiny from federal regulators and possibly the addition of AI related tools in their fight against fraud.

2023 Most Frequent Topics for the Fraud & Ethics Category

1. Occupational Fraud

2. Research Misconduct

3. Theft

4. Conflict of Interest/Ethics

5. Academic Fraud

So why does occupational fraud always lead this category? The short answer is because anyone employed by the institution can commit it. As we have mentioned before, there are three factors present in most cases of occupational fraud (often referred to as the Fraud Triangle):

Pressure – Historically, the biggest pressure has been financial pressure (generally debt). This is one area to keep an eye on as reports indicate that credit card debt has reached an all-time high. This will create pressure for employees in all industries.

Opportunity – This factor comes in many forms from simply taking home an institutional asset, to padding a travel expense, or misusing a credit card to make personal purchases. Those are examples of just how easy it can be for fraud to occur.

Rationalization – The most common rationalization we hear is that an employee is ''borrowing'' the funds and plans to repay them; however, repayment never happens as the pressures on the employee continue into the next month in virtually every case of occupational fraud.

The best way to prevent occupational fraud is through strong internal controls. The greatest internal control you can implement in your institution is maintaining proper oversight and knowing what is going on. Oversight and segregating certain duties are musts as internal controls.

Every two years the Association of Certified Fraud Examiners publishes a report. Their latest, Occupational Fraud 2024: A Report to the Nations, was just issued on March 21, 2024. We will be analyzing their findings regarding our industry in a future column.

As always, there are a multitude of risks facing our industry, and we invite you to review this month's news stories with a view toward proactively managing risk in your sphere of influence. We welcome your comments and suggestions.