The Fraud Triangle

The 80/10/10 adage states that 10% of the population is as honest as the day is long. They will not lie, cheat, or steal no matter what the circumstance. Another 10% are crooks and should be behind bars. The other 80% of us, given the right opportunity and the right circumstance will behave unethically. It could be fudging a timesheet, stealing office supplies, or embezzling money.

I need this box of pens for the church auction. They won't miss them. It's for a good cause. I need some more cash for this unexpected medical expense. I'll pay it right back; I'm just borrowing the money. I'll use the company credit card for dinner tonight with my wife. I've work my butt off this month. It's the least they can do. I deserve it.

These statements illustrate the three tenets of the fraud triangle: perceived need, rationalization, and opportunity.

• Perceived need - Perceived need is often created by expensive addictions such as substance abuse, sex addiction, gambling addiction, and spending addiction. Companies are limited in how much they can prevent this. However, companies should be aware of changes in behavior and spending that may raise red flags. Not to trivialize it but remember the four 'Bs' of perceived need: Beer, Boobs, Betting, and Borrowing.
• Rationalization - Never underestimate the ability of the human mind to rationalize anything. The criminal mind can actually rationalize a crime as being a benefit to society. Infamous fraudster Frank Abignale bragged in his book, Catch Me If You Can, that he only bilked large corporations and not individuals. He was doing them a favor by exposing their weaknesses.
  
• Opportunity - This is one area that companies have the ability to control. Opportunity is the means to steal whether it be leaving the supply closet unlocked or an inadequate system of internal control and segregation of duties.

A recent survey found that executives are concerned about the rise of employee theft during this economic downturn. Small businesses reported fewer incidences of employee theft. The data suggest that employees who are part of a cozy group tend to think twice before stealing. What is your company doing to deter employee theft?