November 14th marks the beginning of Fraud Awareness Week. Are you or your business vulnerable to fraud? What is it and what should you look out for? Let’s take a look at the “Fraud Triangle”. 

The Fraud Triangle illustrates the 3 fundamental factors that contribute to the risk/likelihood of fraud. 

Opportunity

The business/real-world environment in which the organization operates can give rise to opportunities for the perpetration of fraud. This can include designing a process that lacks checks or controls to limit the opportunity to commit fraud, as well as the oversight of the operations lacking appropriate review that could detect fraud. This can be limited by:

  • Segregation of duties
  • Independent review of activity/records
  • Oversight of results by knowledgeable individuals
  • Mandatory vacations – Instances of fraud are often found when the person perpetrating the fraud is unable to continue to cover up evidence

Rationalization

This can come in many forms and can vary from disgruntled employees, seeing the organization as owing them to a justification that there is no harm or that the fraud won’t impact the organization. This can be limited by:

  • Maintaining positive employee and customer morale
  • Tone at the Top – Management’s setting an example of honesty and integrity

Pressure

These are the motivating circumstances that drive a person to feel the need to commit fraud. It may take any number of forms; from a sense of need to meet internal targets to personal financial issues where there are pressures to seek monetary gain. A business can limit this by:

  • Being aware of visible indicators, such as employees living above their means – not alone evidence, but something to remain professionally skeptical of
  • Financial background checks for key personnel – Check for credit/financial issues
  • Internal budgeting and target setting that does not create excessive demand on individuals to meet targets – Be aware of potential pressure from the structure of compensation and performance measurement of key employees

Want to learn more about fraud? Here are some more articles on the subject:

Fraud: Make Sure the Board is Drinking Their Morning Coffee 

Considerations for Avoiding Expense Fraude

Want to speak to an expert about your own situation? Connect with our team today:

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