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
We’re pleased to kick off the new year by sharing our most-read blog posts from the Risk Management Blog in 2014.
Payroll fraud accounts for about 9.3% of occupational fraud at a cost of over $300 million per year across all types of organizations. One of the most common forms of payroll fraud is the use of “ghost employees” to divert money to fraudulent identities. Like all organizational frauds, this is a hidden crime that can best be prevented by controls designed to expose all payroll transactions.
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In this post, we offer an overview of the elements of a fraud prevention program that would be useful in any organization. Summarized from, Managing the Business Risk of Fraud: A Practical Guide, produced by a consortium of associations, the guidelines point to specific steps managers can take to implement an effective fraud prevention program.
Read full post > … Continue reading
The evidence is that organizational fraud occurs at a startling rate and at great cost. Fraudsters can occupy positions at any level and in any kind of organization, finding creative ways to enrich themselves at the expense of the organization. Owners, managers, and employees who dismiss or minimize the chances of fraud occurring in their workplace do so at their financial peril.
The hard truth about organizational fraud is that new fraudsters emerge every minute. They are not born that way—need, self-serving justifications, and opportunity can turn a trustworthy employee into a thief without warning. Situations such as addictions, family troubles or financial pressures can help to create the circumstances that might trigger fraudulent behavior in someone who wouldn’t normally commit fraud.
In other words, the most salient fact about fraud is that it is a highly probable event given enough time for a would-be fraudster to find opportunities somewhere in the organizational environment. Fraud is as constant as human nature.
You Cannot Eliminate Fraud, But You Can Manage It
Given the continuous emergence of new fraudsters, it’s easy to understand when some organizational managers throw up their hands in defeat. But the risk of fraud can be managed just like any other risk. In a column on this topic, the Economist summed it up:
Fraud by wayward employees, be they high or low, can never be eliminated. Directors and executives can, however, treat it like any other unavoidable risk, and manage it professionally. … Continue reading
We know the prevalence of occupational fraud is very high, costing organizations of all kinds an average of 5% from top line revenue every year. But what this means is that the importance of preventing these human risk frauds has a high payback, as well.
Owners and managers—employers generally—have a very strong incentive to discover every clue that exists within their own organizations to root out risky people, or at least to make it difficult for them to perpetrate frauds.
Occupational fraud is an intentional, hidden crime, sometimes not detected until years after it starts. Therefore, in order to know where to look within the organization for the potential perpetrators even before the frauds are discovered, it will help to know what characteristics fraudsters are likely to have. In other words, knowing what fraudsters are like can help improve the detection of hidden frauds, or to prevent them in the first place. … Continue reading
Despite the wealth of well-publicized information about the high prevalence of organizational fraud and the high costs of fraud, it is always surprising to learn that so many companies operate without systematic fraud prevention programs, or fail to review their programs on a regular basis.
In fact, there are very important reasons fraud prevention is worth the effort. Here are some of them: … Continue reading