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Are You At Risk for Employee Fraud?

1/20/2016

 
​A 2014 Global Fraud Study conducted by the Association of Certified Fraud Examiners (ACFE) estimates that the average business loses five percent of their revenues to fraud. The global total of fraud losses is $3.7 trillion.
 
The median fraud case lasts 18 months prior to detection, resulting in a $145,000 loss.
 
How can you avoid being a fraud victim?
 
The first step is to become more aware of the conditions that make fraud possible.
Picture
Image courtesy of Stuart Miles at FreeDigitalPhotos.net
The fraud triangle is a model that describes three components that need to be present in order for fraud to occur:
  1. Motivation (or Need)
  2. Rationalization
  3. Opportunity
 
When fewer than three legs of the triangle are present, we can deter fraud. When all three are present, we leave ourselves open to fraud.
 
Motivation
 
Financial pressure at home is an example of a motivation to commit fraud. The fraud perpetrator finds themselves in need of large amounts of cash due to any number of reasons: poor investments, health care expenses, family requirements, gambling, a flamboyant lifestyle, or social pressure.
 
In short, the person needs money – fast.
 
Rationalization 
 
The person who commits fraud rationalizes the act in their minds:
 
  • I am too smart to get caught
  • I will put it back when my luck changes
  • The company will not miss it
  • I do not like the person I am stealing from
  • I am entitled to it
 
At some point in the process, the person who commits fraud loses their sense of right and wrong. They stop believing there will be consequences.
 
Opportunity
 
Here is where you as a business owner can truly help prevent fraud. If there is a leak in your control processes, then you have created an opportunity for fraud to occur.
 
Employees who handle cash, have signatory authority on a bank account, or manage financial records with poor oversight could combine the opportunity for fraud to occur with the ability to cover the act up for an indefinite period of time.
 
Seventy-seven percent of all fraud occurs in one of these departments: accounting, operations, sales, executive/upper management, customer service, purchasing and finance. The banking and financial services, government and public administration, and manufacturing industries are at the highest risk for fraud cases. (Source: ACFE)
 
Prevention
 
Once you understand issues leading to fraud, prevention is the next step. To some degree, all three points on the triangle can be controlled; however, most fraud prevention programs primarily focus on the third area: Opportunity.
 
When you can shut down the opportunity for fraud, then you’ve gone a long way to prevent it.
 
While we hope fraud never happens to you, it makes good sense to take preventative steps to avoid it.

​Please give us a call if you would like to discuss options that may assist your business to avoid becoming victim to fraud. 

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    Author

    Successfully meeting the challenges inherent to new and smaller businesses provides me with a special type of satisfaction. 

    Supporting businesses that have the potential to become amazing – from both the perspective of owners and team members as well as their clients – is what I enjoy. 

    I hope to use this blog to provide information specific to businesses that are growing from small beginnings into exceptional companies.

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  • Home
  • Why Us?
    • Reviews
    • Open Positions
  • Client Services
  • Resources
    • Save on QBO Subscriptions!
    • Tax Refund Status
    • Gusto Year End Checklist
    • Videos >
      • Business Taxes >
        • 2019 Business Tax Highlights
        • 7 Ways Small Business Can Save On Tax
        • Taxes for S-Corp Owners
        • The IRS Loves Businesses
      • Personal Taxes >
        • 2019 Tax Highlights
        • Five Yearly Tax Essentials
        • 4 Common Tax Surprises
        • Retirement Can Be Taxing
        • Advance Child Tax Credit Reconciliation - 2022
        • Make the Most of Your Donations
        • Five Great Tax Secrets
        • Renting Your Property Tax Free
        • Ideas to Audit-Proof Your Tax Return
      • The Tax Cuts & Jobs Act >
        • The Tax Cuts & Jobs Act: What You Need to Do Now
        • The Tax Cuts & Jobs Act: Are Itemized Deductions A Thing of the Past?
        • The Tax Cuts & Jobs Act: The New Child Care Tax Credit
      • Tax Topics >
        • Tax Season is Coming!
        • The New World of Deductions: What Everyone Needs to Know
        • Proving Your Deductions
        • How to Fix a Mistake on Your Tax Return
        • How Long Should I Save It?
        • Tax Credit vs Tax Deduction
        • Understanding Effective Tax Rate
        • Understanding Marginal Tax Rate
      • Life Events >
        • Life Events: A New Birth
        • Life Events: Marriage
        • Life Events: Divorce
    • Articles >
      • Accounting & Bookkeeping >
        • How to Get the Most Out of Your Accounting Fees
        • The 10 Biggest Money Leaks in Your Accounting System
      • Business Factors >
        • IRS Rules for Classifying Workers
        • Checklist for a Healthy Cash Flow
        • 12 Ways to Improve Your Business Profits
        • 10 Step Annual Business Check-Up
      • Tax Topics >
        • Tax Guide for Self-Employeds
        • 15 Things Every Tax Payer Should Know
        • Disaster Casualty Losses
        • Travel & Entertainment Deductions
        • Tax Guide - A Deduction Checklist
        • What You Should Know About Tax Audits
    • Newsletters >
      • Newsletters - Monthly Editions >
        • Newsletter - Monthly Edition
      • Newsletters - Quarterly Editions >
        • Newsletter - 2019 Fall/Winter
        • Newsletter - 2019 Spring/Summer
    • How To's >
      • How To - Dext
      • How To - BILL
  • Blog
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