Fraud, Embezzlement and Mistakes
Fraud, Embezzlement, and Mistake:
Key Differences
Fraud, embezzlement, and mistakes should not be confused, as they are distinct actions with different intents and outcomes:
- Fraud:
The intentional misappropriation of resources for personal benefit.
Involves concealment to cover up the act.
Perpetrators gain from the act and often repeat it.
- Embezzlement:
The misuse or mismanagement of assets and resources, typically for personal or unauthorized purposes.
Can be seen as intentional waste or inefficiency, though not always concealed.
- Mistake:
Unintentional actions caused by a lack of knowledge, oversight, or human error.
Corrections are made once the mistake is identified, and lessons are learned to prevent recurrence.
Differences in Behavior and Intent
Fraud is not a mistake because it involves intent to deceive and benefit, whereas mistakes are unintentional and corrected upon discovery.
In fraud, the perpetrator earns through concealment. In mistakes, the individual learns through correction.
Examples
Fraud:
An employee steals tissue paper from the organization’s washrooms and uses it at home.
Employees sign for fieldwork or retreat allowances for trips they do not attend.
Drivers siphon fuel from trucks and sell it during fieldwork.
Embezzlement:
An employee takes excessive amounts of tissue paper from the organization’s washrooms, uses only a little, and wastes the rest.
Employees claim fieldwork allowances for unnecessary trips or inflate the number of participants in an event.
Using a company staff bus to deliver a single letter 40 kilometers away, instead of assigning a cost-effective alternative like a motorbike courier.
Prevention of Fraud and Embezzlement
Failing to address embezzlement can create opportunities for fraud, which spreads rapidly through corruption—a common enabler of fraudulent activities.
Fraud typically occurs through collusion, while mistakes can occur unintentionally within a team. Examination, Prevention, Protection, Detection, Investigation are key in mitigation
Loss Prevention and Control
In retail settings:
A cashier may mistakenly double-charge a product without correcting the error. If left unchecked, this behavior can evolve into fraud, where the cashier colludes to pocket the extra cash.
On the customer receipt, the total appears higher than the actual purchase, leading to complaints, tarnished brand reputation, and reduced sales.
Conclusion
Unchecked mistakes and embezzlement can escalate into fraud if internal controls are weak. Preventive measures, regular audits, and robust internal controls are essential to minimize errors, reduce waste, and detect and investigate fraudulent activities. Remember, omission of mistakes without correction leads to the commission of fraud through concealment.