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Say "Whoa!" to Fraud!


Black iron triangle.jpgChuck Wagon Cook.jpgHave you ever watched a Western movie and noticed the cooks?  Ok, I have to admit I found the horses a lot more interesting.  However, the cooks had the power of the triangle.  They would ring the wrought iron triangle and the hungry cowboys came riding in because they knew the chow was ready.  I am not entirely sure why a triangle was used to alert people that food was ready to eat but it does have a loud sound that can be heard from long distances.      

Triangles can also help illustrate a story, and explain a business theory.  One particular triangle to which accountants refer is the fraud triangle.  The story illustrated by this particular triangle is something that all business people should read.  It tells the story of Need, Rationalization, and Opportunity. 

Let's discuss this concept with a hypothetical story: 

Tommy worked for ABC Riding Stable, but was struggling to make ends meet.  He was getting calls from creditors demanding payment.  He needed more money than he was making.  (Note: This leg of the fraud triangle is also referred to as motive, pressure or incentive).  Tommy felt the best way for him to get the creditors off his back was to "borrow" money from his boss.  (Note:  Tommy did not approach his boss to ASK to borrow the money-it's theft).  His rationalization for this was that he would only need to take money once and would pay it back before anyone noticed. 

Tommy had incentive, and he knew that he would give back the money.  The only piece left was to figure out the how part of his plan.  In order for this to work, the right opportunity needed to be in place so he could take care of the creditors and give back the money.  A vehicle for carrying  out his rationalized plan had to be implemented. 

One weekend Tommy was collecting money from riding clinic participants.  His boss asked him to take the money to the bank on Monday.  This was the opportunity Tommy needed to steal--"borrow" the money.  He collected all the money but recorded only a partial list of participants.  The money that was deposited matched what he collected from the recorded participants.  By omitting the registrations of others, he could slide the money into his pocket--it didn't even seem to be wrong. 

A week or so after the clinic, Tommy's boss, Henry, was talking with one of the participants.  He remembered seeing her at the clinic but not her name on the registration list.  Henry decided to investigate the matter.  The names of at least two people on the registration list, whom Henry knew had attended, were missing. 

Henry called the police and Tommy was arrested for theft.

In order for fraud to occur there has to be opportunity to commit fraud.  The triangle is not complete without all three sides.  Tommy's ability to commit this fraud would have been broken if a few things had been modified by Henry. 

Some examples of ways to modify this situation, which would have helped to deter Tommy's fraud:

• Prepare a list of all pre-registered participants and have them initial or sign by their name. 
• Money received via pre-registration could be sent to a lock-box at the bank where it would safely be deposited into your account.
• Consider accepting credit card payments.
• Require the money collected at the event be dropped into a locked safe that the collector did not know the combination. 
• Whenever possible separate cash related duties such as having one person collect the money and another person deposit the money.

These examples are just a few of the many ways to break the opportunity leg of the fraud triangle.  My hope is that you will rein in the basic concept of the fraud triangle so you can understand; access your individual performances; modify your methods and bring fraud down to a smooth, easy halt. 

Disclaimer -  No one committed a crime, the story of Tommy is fictional and is meant to illustrate a business theory. 








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