This week is International Fraud Week, an annual awareness effort organized by the Association of Certified Fraud Examiners (ACFE) to shine a spotlight on fraud. It is estimated that fraud costs approximately 5 percent of annual revenue for organizations worldwide. The seriousness of the global fraud problem is why, throughout the year, we provide our clients and other organizations with tips and information to fight fraud and safeguard businesses and investments from the growing fraud problem.
Here we share 6 of our most-read fraud-related resources:
Our latest whitepaper, Occupational Fraud: A Hidden Killer of Organizational Performance, provides an in-depth look at the complexities of occupational fraud, so you can prevent, detect, minimize, and/or recover from it.
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The value of the fraud triangle is that it helps us to look at the objective factors that must be present for fraud to occur. Recognizing these objective factors helps to define actions you can take to help prevent fraud, partly through organizational policy controls and partly through managing the relationship with employees to encourage openness and trust.
View the Fraud Triangle infographic>
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As we look toward 2016, we thought it might be useful to get a quick big picture on organizational fraud for context. We have been posting about the causal factors driving fraud and urging you to develop an effective risk-based prevention program. Now, here’s the why: 16 facts about fraud drawn from the 2014 ACFE Report to the Nations that should make it relevant to you. … Continue reading
Ordinary people can do extraordinary things, including committing fraud. The question is, what motivates an ordinary person to morph into a fraudster?
“Pressure,” or motivation, is one of the three causal factors of Donald Cressey’s Fraud Triangle, along with opportunity and rationalization. A quick summary of the theory is that a person commits fraud when under difficult or threatening personal circumstances (pressure) and he or she has access to a valuable target for personal gain (opportunity) that they can justify internally (rationalization).
The pressure factor in fraud risk is idiosyncratic and dynamic. Individuals’ circumstances are as highly varied as their perceptions and reactions are to them. The main thing is that the propensity for fraud emerges when a person’s circumstances create perceived pressure that leads him or her to exploit an opportunity when it appears. In other words, every person in every organization has the potential to commit fraud under the right combination of circumstances. … Continue reading
Donald Cressey’s Fraud Triangle historically has received a lot of attention during the ACFE’s Fraud Week and for good reason. It supplies a useful set of analytical distinctions in its three components—opportunity, rationalization, and pressure or motivation—that lead us to look at specific relevant factors that affect fraud in organizations. Understanding the causal forces at work helps us to take steps to address them.
The opportunity for fraud is the most straightforward causal factor for organizations to address because it is rooted in the organization itself. Unlike motivation or rationalization, opportunity does not depend on the potential fraudster’s personal circumstances or state of mind. Therefore, opportunity reduction works regardless of whether or not a potential fraudster exists in the workforce at any given time.
Opportunity has long played a part in the general policy of crime prevention. For example, in the 1980’s, a prominent theory was Crime Prevention through Environmental Design (CPTED). The aim was to create living and working spaces that removed opportunities for crime. In turn, CPTED was based on Jane Jacobs’ insight that safer cities were those that had vibrant, people-filled public spaces with lots of eyes on the scene. The idea that opportunity can be managed to reduce the incidence of crime, regardless of how potential criminals think or behave, has a solid pedigree. … Continue reading
As part of the annual fraud awareness week, we wanted to bring you a quick summary of the principles of fraud risk management. These points are based on an extensive review titled Managing the Business Risk of Fraud: A Practical Guide.
As the Practical Guide emphasizes, “An organization should strive for a structured as opposed to a haphazard approach.” The Guide is a good place to start developing a fraud prevention and detection program as part of your overall risk management efforts (or structuring a review of an existing program). But as always, diving into the details of organizing and implementing a program like this requires significant effort. Skipping steps or making assumptions about risks and mitigation practices without systematic assessment will often lead to gaps or weaknesses in the plan. … Continue reading