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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.
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