Employee Fraud in Banks

Employee fraud

Introduction

Employee frauds are when fraud is committed against a company by an employee (a person working in the company with certain responsibilities and job assigned) then it is called employee fraud. It can be done in many forms but only possible after improper monitoring or trusting employees beyond the level they deserve. In business its idle to keep a check on functions at every level in regular intervals to avoid employee mal functions. Frauds done by employee can include tampering check, inventory theft, data misuse, overbilling, etc.

According to Alex Malley (C.E.O of CPA Australia), for occurrence of any fraud which is deceptive, corrupt, dishonest or unethical practice in company by any employee, there need to be absence of safeguards or improper control in the system.

Data collected

Employee fraud in last year (2016-17), according to information collected by audit firm RSM under Information Act, its nearly 1.1 million euros worth employee fraud occurred only in Cambridge shire university in country sharing boundaries with Sufflok and Norflok countries with universities accounted to more than 9,000 and 3,000euro fraud respective cases. This examples throws bright light on the magnitude of employee fraud took place in recent years.

In India, among many things that came into public notice due to regressive calculations done after huge Punjab National Bank (PNB) scam, the major one is active role of employees of the Public Sector Banks (PSB) over past years. According to data gathered from RBI by an expert and renowned newspaper in India, Times of India, it is clear that – from April 2013 to June 2016 there were more than thousand fraud cases in which nearly twenty five thousand  crore rupees were lost. Majority of them are found to be because of personal benefits and unethical or illegal behavior of employees.

For example, $398 million (INR 25,870 million) is the sum of money involved in 89 scams done by 93 employees in a span of ten years – from 1st January 2001 to 31st July 2012 only in Australia.

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A stud done by Static Brain in 2015 reveals jaw dropping figures of corruption. With increase in employee fraud, companies witnessing a great loss in revenue. This loss is only due to unethical and illegal activities done by its own employees. The major reason for this is improper payment and biased behavior of management. Unfair treatment encourages employees to behave against company and in turn they will search for ways to make benefit out of loop hole and vulnerabilities present in the system.

Employee Theft Statistics:

• Annually amount stolen by employees in U.S. is more than 50 billion US dollars.
• Business bankruptcies caused due to theft done by employees is near to 33 percent
• Employees committed theft twice from organization to their payment is about 37 percent
• Employees copied ideas from their organization is almost 29 percent
• The time taken to identify the employee fraud on average is 2 years
• The loss caused by employee fraud in an organization sums up to 7 percent
• Employees who committed fraud at least once is above 75 percent of all employees

Sources of Inventory Shrinkage:

• Done by employees is almost 47 percent
• Done by customers (shoplifting) is around 31 percent
• By administration is near to 15 percent
• Due to illegal activities by vendors is about 4 percent
• Due to other, unknown, reasons is the remaining 3 percent

Amounts Stolen:

• $1,000,000 and up – 25.3%
• $500,000-$999,999 – 9.6%
• $100,000-$499,000 – 28.2%
• $10,000 – $49,999 – 16.8%
• $1,000 – $9,999 – 7%
• $1,000 or less – 1.9%
• Medium amount stolen – $175,000

Demographics:

• Percentage of men employees committed unethical or illegal activities is near to 60
• Women employees committed fraud is near to 40 percent of total female employees
• High school degree – 34% (Degree holders)
• Who just completed their college study is more than 21 percent
• Employees holding bachelor’s degree is around 34 percent
• Employees with post graduation degree is almost 11 percent

In case of South Africa, it is more threatening to know that fact that country is loosing R40-billion to white-collar crime every year. In 2015 a survey conducted by one of the worlds best companies, PwC, says that South African companies experience more bribery and fraud than their counterparts anywhere in rest of the world. 2015 has been a record making year in case of frauds topping with 12% when compared to previous 11%.

This survey indicate that the typical fraudster is with following characteristics

• Gender: Male
• Age group: 31 – 40 years
• Experience: more than 10 years
• Qualification: University degree

Losses due to manipulation done by employees (Employee fraud) in Greater London is found to be £7m in 2016-17, out of which 4.8 million (29%) is contributed by city of London.

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Reasons for Employee fraud

Employee fraud can be as simple as giving fake attendance and skipping office hours which in turn reduces the organizations performance and results in losses. It need not a big scam of worth more than million dollars but by signing a contract which do not stand to the company norms may destroy the company’s reputation built over years. The reasons for employee frauds are critical to make the study complete and meaningful. Few reasons we collected in our study are absence of control mechanism, discrimination among employees, partiality, salaries lesser than market value for that particular post and trusting employees.