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Taking the Necessary Steps to Avoid Fraud

(February 2011) posted on Thu Feb 03, 2011

Ways to recognize signs of fraud and how to stop it from occuring.


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Years ago while I was in college, one of my accounting professors – one of the country’s foremost experts in white-collar fraud – informed us that he was going to spend the class period talking about fraud and how it might affect us during the course of our careers. We were somewhat surprised when he told us that during the course of our careers we would no doubt be witnesses to fraud and may even find ourselves susceptible to its temptations.

Now, some of you may believe that the topic of fraud doesn’t really apply to you and your organization; you believe there really isn’t anyone in your company that could possibly be capable of fraud. But you are wrong.

Most often, the person convicted of fraud is one of the most trusted people in an organization, and as such, has essentially been given total control over fiscal responsibilities. Another telling statistic: In terms of tenure with the company, more than 30 percent of those who perpetuate fraud have been with the company between five and 10 years. In other words, those who have established trust. Your best defense against fraud, then, is to realize that you and your organization are not immune.

Fraud’s three elements
In my college class, we learned about a concept called The Fraud Triangle. To help us remember what this phrase means, our professor drew an analogy: Just as fire requires three elements to exist – heat, oxygen, and fuel – fraud also requires a combination of three elements to exist: pressure, opportunity, and rationalization.

Pressure, of course, comes in the way of financial pressure, whether it is too many bills, overspending, credit-card payments piling up, expensive medical bills, or a myriad of other things that can cause financial strain in our lives.

Opportunity has to do with the position that an individual has within your business structure and how that position can allow them access to steal from you. This would typically be oriented around the financial organization of your business, but could also involve the management of assets that are easily converted to cash.


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