Don’t Expect Luck to Protect You from Fraud

As St. Patrick’s Day approaches, many thoughts turn to wearing green, eating out at your favorite pub, and if there really is such a thing as the luck of the Irish. But you probably aren’t thinking about your luck in relation to your business and its success. After all, it is hard work and knowledge that leads to profitability, not just blind luck. But that is exactly the road many business owners seem to take when it comes to protecting their assets from fraud – they hope their luck will hold out against fraudsters and schemers who may also be their very own trusted employees. These are people who usually have no criminal record, but every now and then are tempted to cross the line.

Let’s use this holiday as a reminder each year to make your own luck when it comes to protecting all you’ve worked to build within your business. Here are a few tips that have nothing to do with luck – just some common sense, basic observations and knowledge about fraud that will help protect you from theft, embezzlement, and other scams that may already have a foothold in your company:

  1. Don’t wish on a four leave clover that nothing bad will happen to your company finances; rather study and watch for the four fraud motivators that influence an employee to commit fraud in the first place. This “fraud diamond” consists of opportunity, rationalization, pressure, and the fourth and latest addition of capability – having the necessary traits and abilities to pull off the fraud. These items work together on a person who, with the right combination of factors, is led to commit fraud.
  1. Watch out for leprechauns – someone tricky, a fraudster often has key characteristics that show up again and again. Does one of your employees fit the profile? According to a 2007 KPMG study, a fraudster is typically a male between 36-55 years of age. They will most often hold a position of trust in your organization and have been working for you for more than six years, most often in the finance department.
  1. The color green, the theme of St. Patrick’s Day, can represent hard-earned money for your organization, but it can also signify greed.  Greed and opportunity are motivating factors for those who may commit fraud. Do you notice someone in your organization that obsesses over the latest and greatest item or spends more money than they make on cars, jewelry or electronics? These are red flags and that person should be monitored closely, especially if they are in a financial position.
  1. Business owners know that the pot of gold at the end of the rainbow represents their retirement, the stability of their family and their employees’ families, and the chance to leave a legacy. Protect your pot of gold, because no one else will! Just basic understanding and awareness of the type of person who commits fraud, the basic ways they can steal from the company, and what internal controls can deter them will pay off in the end as you mitigate risk and manage financial systems.

So, Happy St. Patrick’s Day, and remember that we make our own luck in the business world. Keep your eyes wide open and never stop learning about ways to protect your company from fraud.

Tricia J. Cook is a senior forensic analyst with the forensic accounting and litigation services department at Piercy Bowler Taylor & Kern CPAs. She sifts through financial transactions to resolve allegations or evaluate suspicions, interpreting that transactional data and then organizing that information into easy to understand reports for use by counsel, or for presentation in a court-of-law. She can be reached at tcook@pbtk.com or 702-384-1120.

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