Post 4 of 5: Opportunities for Fraud

By Dana McGuffin | February 5, 2015 |

In our 3rd post on fraud, we discussed 3 Key Elements of Fraud in any Business.

To recap, the first two elements were:

Pressure
Rationalization

Opportunity is the third element and what we are going to focus on today. Opportunity, or a favorable juncture of circumstances, is the element over which employers have the most control after the employee is hired..

This diagram represents the environment of opportunity. The environment begins with Trust at the top of the triangle and of that trust flows Access & control and Little or no owner involvement. This scenario can perpetuate itself in a variety of ways. It’s not something that happens over night. It’s a gradual progression.

How does this trusted relationship begin and develop?

One scenario, is a business owner who doesn’t feel they have an understanding of numbers and leaves the financial decisions and duties to another. This owner can be so afraid or intimidated that he feels the business is better if he just stays out of that area. This happens, many times, with creative types, or left brain business owners.

Another scenario plays out in a start-up business. In the beginning, the owner wears all the hats. He’s the salesman, production worker, bookkeeper, marketing rep. The list of duties seems endless at times. As business grows, the duties pile up and the owner may hire a bookkeeper.

Trust- The relationship starts with Trust. Often, a sense of trust is a key deciding factor when hiring an individual. As the relationship develops, the owner begins to enjoy some relief. Finally, they have someone they trust to handle the matters that they either don’t like or feel they don’t have time to perform.
Access and Control- Because of the trust in the employee, they are often granted additional access and control. Access to bank accounts, credit cards, blank check stock, authorized to sign checks or left with blank signed checks.
Little or No Owner involvement-As the owner moves onto other duties, less attention is given to the work of the trusted employee. The owner steps back, concentrating more time in other areas, that is after all, why the employee was hired.

What’s the answer, what solutions are available? The relationship cannot be avoided, but it can be managed. A business owner cannot carry out all functions or run a successful business without some help.