We can formally define fraud as a form of intentional deceit or a breach of confidence, perpetrated to gain profit or dishonest advantage. This definition would seem clear. However, the legal interpretation and the general public's more subjective interpretation are more often measured in shades of grey.

How do you confirm intent? What's a dishonest advantage? Is a lie by omission fraud? Determining what falls into the category of fraudulent activity proves an interesting exercise. The role that a forensic accountant plays in ascertaining the relevant facts is as varied as the interpretations of fraud.

As members of the Due Diligence & Forensic Investigation Group, the psychology of fraud intrigues us. What's more, understanding the psychology is essential in our training. The diverse and sometimes subjective boundaries of fraud are not only relevant in determining who likely may commit a fraudulent act but equally relevant, if not more so, in identifying potential fraud victims.

While you may personally believe that taking work supplies home is occupational fraud, your colleagues or employees may think that "shopping" from the work supply cabinet for their families' "trivial" needs is a job perk. Office supplies bandits generally define fraud outside of their actions. They think of fraudsters as persons who have bilked a large amount of money from investors.

Do you see the shades of grey? How many paper clips does it take to commit fraud? For most of us, the line is drawn somewhere between the inadvertent way company pens find their way into our kitchen drawers and the cash kickback a purchasing agent receives for awarding a large supply contract.

The interpretations of fraud vary, as does its tolerance, but not in direct proportion. For example, Business A may have a broader definition of fraud than Business B and consequently has a greater tolerance of fraud. Essentially, Business A may knowingly have persons committing fraudulent activity but place a lower threshold for certain deceitful acts, therefore, implicitly tolerating their existence.

But what if it was discovered that many employees were committing that same fraud, which was deemed individually insignificant? Would that mean a change in the threshold from any one misdeed to the accumulation of acts?

There are many considerations when assessing how to define, control, detect, measure, mitigate and respond to these threats in your workplace. It is not one size fits all. The Assurance & Advisory practice is requested to assess and recommend internal controls, sometimes in specific engagements to reduce the possibility of fraud. In our Forensics Group, we are often called after the fact to determine the mechanisms and quantum of fraud, and/or to assist in recovering losses or prosecuting alleged fraudsters.

As a business owner or manager, it is important to think proactively about the quantitative and qualitative impacts of fraud on your business. You might begin by answering the following broad questions:

  • What activities does your business define as fraud? How do you effectively communicate these definitions to employees?
  • What are the major areas of your business that are susceptible to fraud occurring? Why do these vulnerabilities exist?
  • What is your risk tolerance toward fraud, and what defines this tolerance level?
  • How can the presence of fraud and how it is dealt with affect your relationship with employees, customers and your brand?
  • Do you actively seek to detect and respond to fraudulent activity?
  • How do you communicate your fraud controls and response policies?
  • Should your company insure itself against certain types of fraudulent activity?

Whether you own a business, are part of management for a public company or sit on the audit committee for an organization's board of directors, it is important to proactively consider your position on fraud and understand it within the framework of your business. The firm's Due Diligence & Forensic Investigation Group and Assurance & Advisory Group have the necessary experience to provide clients with specific risk assessments that will assist in the development of a comprehensive and individualized fraud protection plan for your business. Save your company money and be proactive about fraud in the workplace.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.