There are 3 things that are prevalent in almost all occupational fraud cases. These three things are known as the Fraud Triangle. They are Pressure, Opportunity and Rationalization.
The Pressure is usually in the form of some unshareable financial need. People can have this need because of the death of a loved one, spouse’s loss of a job, gambling habit, drug habit, living beyond their means, a strong desire for personal gain, high personal debt, a feeling they are underpaid or unappreciated at work, undue family or peer pressure, a sudden need for more money, a strong desire to be a wheeler-dealer or they see beating the system as a challenge.
The Opportunity part is easy for some company personnel. Employees whose jobs involve access to money, accounting records or company assets can usually find a way to commit fraud if they set their mind to it. They have the ability to create fictitious vendors, move money around, and may have the ability to manipulate the books to cover up a crime. That is why owners, executives and managers need to recognize signs of pressure in their employees because once the employee is under pressure to commit fraud, the opportunity is often there.
Rationalization occurs before the employee commits a fraudulent act. Believing the company owes it to them, they’re just borrowing it and they’ll pay it back, no one will miss it, I deserve it more than they do, etc., are attitudes that typically must exist for the fraud triangle to be complete.
Behavioral Red Flags to be aware of:
- Living beyond means or big spender w/o the apparent income to support it
- Unusually close to a vendor or customer to the point it becomes suspicious
- Lied on their resume or application
- Legal, divorce, family or financial problems
- Disgruntled, complainer, defensive, irritable most of the time
- Signs of addiction (gambling, alcohol, drugs, pornography)
- Refusal to take time off and/or keeps unusual work schedule
- Unwillingness to share duties
- Intimidates subordinates
- Gets agitated often when you ask them something about their work product
Having one or more of these traits does not mean someone is a fraudster. However, when someone exhibits several behavioral red flags listed above or has one trait that makes that person appear more abnormal in that area than someone should be, that person could be a potential candidate for fraudulent activity and may warrant a closer look at their work product and work relationships.
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