Practical Fraud Prevention Strategies – Part 1 in a series By Glen Moulton, Sole Proprietor of The Fraud Triangle Forensic Services
I am amazed by the fact that Chief Executives and Financial Directors I talk to still maintain that fraud does not occur in their organisations. Most often this statement is not based on an objective assessment of what is really going on in the organisation but rather, on the soft and fuzzy; “I trust my staff, they have been with me for years” and “I can rely on my managers.” Let’s disregard that the fraud surveys indicate that that over 80% of fraud in organisations is perpetrated by staff, 55% of whom are managers. Let us also disregard the fact that a survey conducted by the Association of Certified Fraud Examiners estimates that organisations are losing 6% of corporate turnover to fraud. Probe a bit deeper and these same executives will start to remember the “few exceptions” to the rule. Statistics aside, my daily experience is that every organisation has those “exceptions”. It is an unfortunate fact that any environment that combines people and assets, in whatever form, is an environment in which fraud is likely to occur. I have found that a refusal to accept this basic principle is the fundamental building block upon which an organisation’s vulnerability to fraud is based.
The old adage that solving a problem begins with accepting that there is one, is as true in the fraud environment as any other. That said, let’s put it into perspective. I am not saying that every single employee in your organisation is perpetrating fraud. The theory is that at least 10% of employees will always steal and a mere 10% will never steal. The other 80% are sitting on the fence. Just think “Tax Return” and the above theory becomes far more plausible. So, what turns the 80% from loyal employee to fraudster? There are many reasons but the critical factors are financial pressure, opportunity and a belief that the fraud will not be detected or punished. Put all these elements together and the fence sitters may be induced to jump to the wrong side. The issue therefore becomes not whether organisations have a problem but rather, what they are supposed to do about it.
I believe that the prevention of fraud must become the focus of organisations. Join us over the next few weeks as we discuss Practical Fraud Prevention Strategies.