Issue link: http://viewer.e-digitaledition.com/i/759993
FIRSTLY, THERE ARE two types of fraud: 1) fraudulent finan- cia l reporting, usua lly orchestrated by upper management, involves misrepresenting fina ncia l results in the form of falsifying transactions or intentionally misusing accounting methods, and 2) misappropriation of assets, in which employees stea l company resources, such as cash or inventory. For our purposes, we will be dea ling with the latter. The fraud triangle — a term developed by Donald Cressey — helps explain why and how employees commit fraud in the workplace. According to Cressey, in order for fraud to occur, three things must exist: pressure, rationa lization and oppor- tunity. The first a nd second elements a nswer W H Y fraud is committed. Mounting debt, growing families and lavish lifestyles are a ll pressures that employees might feel when deciding if they want to commit fraud; basically it comes down to need and/or greed. Workers might rationa lize the fraud with thoughts such as, "It will be like a loan; I'll pay it back when my financia l situation changes," or "I haven't received a raise in three years; I deser ve this money," or of ten, "It 's such a sma ll amount, no one will even notice." Fraudsters a ll have di™erent pressures and rationalizations for their crimes that business owners can hardly dictate. However, the fraud triangle indicates that a ll three factors must be present for fraud to occur, and fortunately, owners and management do have a say regarding the fina l third apex. Opportunity satisfies the question of HOW fraud is commit- ted. How easy does the business owner ma ke it for the crook to stea l? Is one employee solely responsible for the receipt, recording and reconciling of cash? Are large payments sent to vendors without some t y pe of ma nagement review? Is actua l inventory never reconciled to the books? These are a ll examples of flaws in operational controls that leave a company Taking Control of Controls (Ways to Prevent Fraud) BY RUTH MENCHACA, CPA Ruth Menchaca, CPA Four frightening fraud facts: + Approximately 50 percent of entrepreneurs will experience some sort of business fraud. The percentage is even higher for medical practices. + Almost all fraud against a business is committed by one or more trusted employees. + Fraud accounts for more losses than robbery. + Small businesses are more vulnerable to fraud than their 100+ employee firm counterparts. But did you know that there are ways to avoid joining the long list of fraud casualties? Ruth Menchaca, CPA 1 4 1 4❱❱❱❱❱ A C C O U N T I N G