Consider which of these you believe to be true:
- Your bookkeeper is honest and would never steal from you -> FALSE
- All the people you’ve hired are ethical people -> FALSE
- A person is either ethical or not ethical, period -> FALSE
- People who commit fraud are long-time criminals, waiting to pounce -> FALSE
It’s a funny thing,
Ask most business owners if they thought fraud could happen at their COMPETITOR.
Answer: A resounding YES! Would be their response.
Ask most business owners if they thought fraud could happen at their OWN business.
Answer: NO WAY! The more honest ones might say, it’s possible, but NOT likely.
There was once a really smart guy, Donald Cressey, who created a theory that said: “If three factors were met, any ordinary, trusted person could bring themselves to commit fraud.”
In other words, given the right situation (or perhaps wrong situation), anybody could commit fraud. Not just criminals, not simply “unethical” people, and certainly not just somebody ELSE’s accounting staff.
The three factors include:
- Pressure
- Opportunity
- Rationalization
In this series of articles, we will discuss each factor and how to watch for and control each.
Pressure
The first factor, pressure, says that a person can have an apparently SECRET financial problem. And this financial problem threatens to steal their standing as a successful, upstanding and trusted person at work, or among friends and family.
Therefore, the person can feel a deep need to “solve” their financial problem in any way possible. By doing so, they can avoid any embarrassment caused by their financial situation.
Many people struggle to pay the bills, try to maintain unrealistic lifestyles or have addictions, but fraudsters are trying to create or maintain a false image at all costs, and this pressure is what creates the first factor.
3 Things YOU can watch out for:
- Living above their means – Keep an eye out for employees who earn $18/hr., but drive luxury cars, wear expensive jewelry or have big homes. They might be stretching their lifestyle past their paycheck.
- Signs of addictions – Keep your ears peeled for employees who might gamble too much or struggle with another addition. They might get desperate.
- Changes in life situations – Keep your senses alert for employees going through a divorce, health issues, family member health issues, spouse losing a job, etc. These situations create enormous pressure on people, and their solution might not be a legal one.
All of these things can be summed up with:
“Be aware of what is going on in the lives of your employees – particularly those with access, who can steal your assets or money.”
This factor, Pressure, tends to have the most outward signs, so pay attention to these types of employee behavioral changes and you just might stop something before it starts.
This summarizes the first factor, Pressure, and how a person with an apparent SECRET financial problem might feel no other option than to steal company money. They are on the prowl for just the right opportunity, which we will cover in the next article “Part 2”!
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Click here to read: "Employee Fraud Factor #2: Opportunity."
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About the Author
Todd Kimball is a senior accounting professional with over 15 years of expertise in the nonprofit and government sectors. He has a proven track record at tackling the most challenging nonprofit accounting issues and finding solutions that work and move organizations forward. He excels at creating process efficiencies, motivating and utilizing staff to their full potential, implementing internal controls, and providing sound technical expertise. Todd focuses on the big picture but doesn’t hesitate to dive into the details. More about Todd here: www.cfoselections.com/consulting/team/todd-kimball
