An auditing and fraud examination instructor is warning that local companies could be losing millions of dollars of revenue each year to occupational fraud without even knowing.
And the accounting instructor at the Fort Hays State University is warning business operators to pay closer attention to their operation and educate themselves on the topic.
Speaking to Barbados TODAY on the sidelines of a workshop hosted by the Caribbean Centre of Excellence for Youth Entrepreneurship, Jessica Heronemus said too often small business operators placed too much trust in their employees.
Based on a 2012 global fraud study by the Association of Certified Fraud Examiners, organizations lose an estimated five per cent of their revenues to fraud each year.
“When we took that out to the Barbadian Gross Domestic product, Barbados loses about $227 million due to fraud every year. And if we could reduce fraud by just one per cent through education it can have a tremendous impact on the economy and what we can do for the people here,” said the teacher of seven years.
“I would say it is enormously significant. You take that figure and apply it to the US gross domestic product it is larger than the entire national defense budget. This is across the board. And that is revenue before you pay all the expenses. So it has a significant impact,” she added.
Heronemus said it was critical that the population was educated on the topic so as to detect, minimize and prevent the practice.
“We have to acknowledge it is happening [and] we have to acknowledge it is a problem before we are going to be able to make any headway in getting rid of it,” she added.
She said statistics suggest fraud was committed more by males, but quickly pointed out that she did not know if it was a case whereby a lot of females were doing it but not getting caught.
Adding that occupational fraud was not confined to any one industry or sector, Heronemus said business operators should not only be concerned when the economy was doing badly.
In fact, she said according to studies there were three components that need to be present in order for the criminal act to take place – perceived pressure, opportunity and rationalization.
“You need to fight those to decrease fraud within an organization. The most effective way to do it is to fight that rationalization. Pay people well and treat them well. Allow them to make a good living and treat them with respect and it makes it difficult to rationalize their fraudulent and criminal behaviour,” she warned.
She also warned that fraud was not confined to any one part of an organization, adding however, that some areas were more vulnerable than others.
“Fraud can hit every part of the organization. Where small businesses are most vulnerable are where money is coming into the business. So at that point of sale or at that point of collecting; money from receivables or when we perform services for people without demanding money upfront, those are the places that are very vulnerable especially to small businesses,” she said.
“I think small business operators should be concerned at all times because whenever there is a financial pressure or a need with the employees, and they have the ability to steal and rationalize that action then fraud can take place. We need to stress that a lot of time it is a perceived pressure it is [often] not a real pressure,” she added.