Ways to recognize signs of fraud and how to stop it from occuring.
Rationalization is self-explanatory. The person committing fraud in your company is somehow convinced that he or she “deserves” the money they are stealing from you – to the point, in fact, that they often don’t believe that they are stealing. Whether they believe they are borrowing it and will eventually pay it back, or that they deserve it for some reason, they have rationalized their way into committing the fraud.
An ounce of prevention
So, if I have convinced you that fraud could potentially exist in your company, how do you prevent it? Let’s address each element of the triangle.
Rationalization may be the most difficult to prevent. This has to do as much with the character of the individual as anything. Perhaps the best way to battle individual rationalization is to establish a position that your business will operate under ethical principles at all times and will expect the same from your employees. Indeed, studies indicate that when confronted about their dishonesty, many employees have justified their actions because they perceive that the company they work for (and have stolen from) has committed dishonest or unethical acts with regards to their customers or vendors or even employees. Ironically, the employees who may be aware of these practices are also often those in positions where they can commit fraud themselves.
So it stands to reason that if an employee knows he works for a company with zero tolerance against dishonesty, he may be less inclined to rationalize dishonest behavior. Another way to deter rationalization is to make sure you prosecute to the fullest extent of the law any individual who commits fraud in your company. It may sound brutal and hard-hearted, but the worst message possible is one of leniency on someone being caught. That just gives the green light to others in your organization to do the same.