Internal Control Weaknesses that Contribute to Occupational Fraud

Various factors can facilitate a perpetrator’s ability to commit and conceal fraud schemes at organizations. The primary internal control weaknesses that contribute to occupational fraud are:

  • Lack of internal controls
  • Override of existing internal controls
  • Lack of management review
  • Poor tone at the top of the organization i.e., management’s leadership and commitment towards openness, honesty, integrity, and ethical behavior.
  • Lack of competent personnel in oversight
  • Lack of segregation of duties/audits
  • Lack of employee education
  • Lack of clear lines of authority
  • Lack of reporting mechanisms

According to the Association of Certified Fraud Examiner’s (“ACFE”) 2020 Report to the Nations Global Study on Occupational Fraud and Abuse, manager-level perpetrators are more likely than other perpetrators to override existing controls.

ACFE found that smaller companies are more likely to lack internal controls and large companies are more likely to have controls overridden. It also found that sole perpetrators take advantage of a lack of controls, while schemes involving collusion are supported by the poor tone at the top and an ability to override controls.

By identifying potential gaps in internal controls, developing a proactive fraud detection program companies can significantly reduce their exposure to fraud and the financial impact these types of events have.


The source of information for this article is the Association of Certified Fraud Examiners (ACFE) 2020 Report to the Nations on Occupational Fraud and Abuse

About the Author:

Michelle Muir is a Senior Manager with BST & Co, CPAs in the Valuation, Forensic Accounting & Litigation practice. She helps clients with their fraud and forensic accounting needs, with a particular focus on corruption, asset misappropriation, embezzlement, financial statement fraud, white-collar crime, and accountants’ liability. She also helps clients proactively manage the risk of fraud and misconduct through fraud risk assessments and review of anti-fraud controls. Michelle has over 20 years of experience investigating fraud. Her background includes forensic accounting and audit work at one of the “Big Four” accounting firms as well as in-house forensic accounting work at NYC and Capital Region law firms. Along with her Certified Public Accountant designation, she is also Certified in Financial Forensics and is a Chartered Accountant.

If you have any questions or need assistance with any fraud-related matters, contact Michelle at BST.