FraudJournal Blog

April 8, 2010

Fraud Trend: Economic Hardship Used to Hide Embezzlement

Filed under: Author's Post,Fraud,Fraud Trends — fraudjournal @ 12:05 AM

Today I would like to remind those of you who are running small businesses that the economy has become an easy excuse used by embezzlers to explain declining profits. Most of you have put lots of sweat equity into building your business. You scraped up the cash to get started, made a name for yourself and even hired a few employees. Some of you have been in business a long time and have employees that have been with you for years. Could be five, ten or even twenty years. And then comes the economy and it feels like you are back to square one.

You look at the income to expense ratios, you make adjustments, change tactics and at last resort you layoff employees. You pour over the reports and bank statements trying to figure out what you are doing wrong. Your trusted bookkeeper keeps telling you that the deposits are getting less and less. He or she looks at you with such care and concern and explains that economy has hit everyone and hopes it will get better for you. You ask if she could stay a little later to help you get ahead. And of course, she agrees and offers to stay late or come in on a weekend. What ever it takes – she’s there to help.

Now before you go and start staring at your long time trusted employees, what you need to know is that embezzling Emma didn’t start taking money overnight. This usall

Fraud happens when the fruit is ripe for the taking. It takes three things to make it happen: Need, Opportunity & Rationalization. So to use our fruit example, Need is the hunger that drives an individual to seek something that will make that hunger go away. Opportunity is your product or profits that are accessible which also elevates the hunger because its there in sight. And these two trigger the third; opportunity. This is where the embezzler finds an excuse that gives them self the impression that their act is acceptable.

Most fraud cases I have dealt with are the result of internal controls that have been missing or too relaxed. Sometimes the controls are in place but the embezzler is just smarter than the controls in place. Can you stop fraud? No. But you can take steps to limit the risk and set the ‘tone at the top’ that fraud will NOT be tolerated and carries severe penalties. Not just loss of job, but prosecution.


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