Facade for Fraud?

Joan M. Renner, CPA, CGMA, Director 501(c)(fit!)

If you lose your keys, why do you always find them in the last place you look?  Because after you find them, you stop looking!  That’s an old joke that I remembered recently while reading stories about fraud.

When people discover a fraud, they almost always comment that the perpetrator was such a “trusted employee”.  Why should that be surprising!  It’s the trusted employee who has the access and opportunity to commit fraud.  This universal sense of surprise actually points straight to a major fraud risk— you trust that your employee will not steal. 

Fraud experts tell us that employees steal when three conditions are present:  opportunity, need and justification.  If the trusted employee has a dire financial need and can justify “borrowing” from his employer, he or she can take advantage of the access provided by your trust, and commit fraud.  

Individuals in dire straits don’t raise their hand and volunteer that they’re on the brink.   They generally maintain a façade that conceals their actions, and preserves their ability to continue to conceal them. 

So how do you see behind the façade?  You can’t go around suspecting everyone of fraud, but you can tune up your fraud antennae by reminding yourself of the most common traits of fraud perpetrators.

According to the American Society of Fraud Examiners*, a fraud perpetrator is most likely to be:

  • a manager, age 31-50,
  • male or female, with
  • 1-10 years on the job, with a
  • college degree, working in
  • the accounting, operations or sales department, with
  • no criminal record, and
  • clean references.

Often an individual perpetrating a fraud is very conscientious at work, doesn’t delegate duties and never takes a vacation.  The individual may be arrive early, stay late and be on good terms with the vendors, even running out to get the mail.  In short, the average fraud perpetrator looks just like a model employee.

What can we learn?

You can’t trust appearances.  While not every model employee is concealing a fraud, most fraud perpetrators look just like model employees.  If red flags, such as cash shortages or continuing excuses, raise your fraud antennae, dig a little further.  You’ll either find out that everything’s ok, or you’ll be glad you kept looking.

Implement fraud prevention controls.  Take away the opportunity and you’ll reduce fraud risk.  Learn more about fraud prevention controls in our in our 501(c)(fit!) PLUS webinar, You Just Lost $1 Million—fraud prevention for CEOs.

Learn about the most common types of nonprofit frauds in our 501(c)(fit!) PLUS webinar, You Just Lost $1 Million—fraud prevention for CEOs

One in five nonprofit frauds involves theft of incoming checks.* Find out how in our FIT! TIP from February 27, 2017.  

Learn more about nonprofit finance in our 501(c)(fit!) live seminar, 501(c)(fit!)—Financial Intensive Training for the Nonprofit Executive.  This live, 2-day seminar is appropriate for Nonprofit Managers, COOs, Executive Directors, CEOs, Development Directors, Program Directors, Board Members and well as future nonprofit leaders.

Get more FIT! TIPS.  Join our 501(c)(fit!) community. 

*yes, it’s true, per the Association of Certified Fraud Examiners Report to the Nations on Occupational Fraud and Abuse 2106 Global Fraud Study. 

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