Most people who commit fraud at work are not career criminals - and are often trusted staff with no criminal history. According to criminologist Donald Cressey, there are three factors (the "Fraud Triangle") that lead an ordinary person to fraud: opportunity, pressure, and rationalization.
Take this example: a bartender who splashes a little more scotch into his friends' drinks when they come into the bar is succumbing to opportunity; his peers' expectations that he'll do this create pressure; while telling himself that "everybody does this - and we're too stingy on our pours, anyway" provides a rationalization.
How can you use this three-legged tool to detect and deter fraud?
You can't do much with about rationalizing fraudulent misbehavior because everyone does it without announcing their decision in advance.
You can't learn whether employees might be under financial pressure to commit fraud without investigating their personal finances - which is impractical and illegal. However, you might be able to minimize work-based pressures they face (for example, forbidding managers from ordering them to hit their goals at all costs).
Opportunity provides the most effective leg in the triangle to curb fraud by making it more difficult. Here's how:
- Segregate duties so that no one has sole control over accounting, reconciling, custody of assets, and approval of transactions.
- Make sure that transactions which are unusual or involve large amounts have strong managerial oversight and follow-up.
In other words, develop effective control systems so that any larcenous employee will need to be clever enough to avoid several pair of eyes while running a gauntlet of people who reconcile accounts and monitor budget.
If fraud does strike despite these precautions, make sure that you have the right insurance to protect you from loss. For more information, just give us a call.