Let’s continue our discussion on fraud. (For our 2nd Post on fraud with recent examples we’ve seen, click here.)
FRAUD \ noun\ ‘fröd\
Definition of FRAUD
1a: DECEIT, TRICKERY; specifically : intentional perversion of truth in order to induce another to part with something of value or to surrender a legal right.
In other words, fraud is pretending to be something other that what you are, or lying. Fraud can take on many forms:
- In biblical times, Jacob pretended to be his brother, Esau, to trick his father into giving him the birthright that legally belonged to Esau.
- Cheating on a test in school.
- Pretending to have similar beliefs/likes/etc as a fiancee before marriage.
- Pretending to be a neighbor’s friend whenever you want to borrow equipment or tools.
In 2010, the Association of Fraud Examiners reported that over 42% of all reported fraud occurs in small, private companies and is perpetrated by a trusted company employee! (For more from the ACFE on how most fraud is perpetrated by trusted employees who largely go unprosecuted, click here.)
This type of fraud can range from:
- The innocent “borrowing” of office supplies. Post it notes, reams of paper, etc
- Padding of an expense account, to
- Embezzling funds through various schemes that can include, payments to fictitious vendors, forging checks, etc.
Almost daily, we hear a story of another company whose employees have decided to take matters into their own hands and increase their take-home pay or the company’s profits through creative accounting.
Fraud involves three key elements as represented here – Pressure, Rationalization & Opportunity.
Pressure can be applied from many sources:
- A sense of needing to keep up with the Jones’, pressure to have what your neighbor has or more than your neighbor.
- A situation where household expenses surpass income. Where the money runs out before the end of the month
- Pressure from dunning, relentless creditors. Often contacting a debtor during work hours.
- The pressures of addiction. Shopping, gambling, alcohol, etc,
Rationalization can also have many voices. It may sound like:
- While I’m here running his business, Mr. Jones is out playing golf.
- Mr. Jones drives an Escalade and lives in a big house, while I come to work in my 78 Gremlin and live in the projects. My AC doesn’t even work and it’s July in Texas, 110 degrees in the shade.