Honest people can have a hard time perceiving and understanding dishonesty in others. Because they have a difficult time conceptualizing it they have a difficult time detecting it. A common lament among managers who have discovered fraud among their employees, vendors and clients is, “I don’t understand how he could do this to me. I had no idea it was happening. I’m just too trusting.”
People too often identify themselves as being trusting, when they’re really being naive. Don’t be naive, protecting your business is vital, many small businesses have been closed due to the fraudulent behavior of their employees, venders or clients. If you don’t want to be taken advantage of it’s important to understand the 3 key factors of the Fraud Triangle.
Before discussing these factors it’s helpful to define fraud, people often have misconceptions about it. According to “Black’s Law Dictionary” fraud is “a generic term, embracing all multifarious means, which human ingenuity can devise, and which are resorted to by one individual to get advantage over another by false suggestions or by suppression of truth, and includes all surprise, trickery, cunning, dissembling, and any unfair way by which another is cheated.”
The 3 factors, which make up the Triangle, are typically present when someone commits fraud. Understanding these elements will help a manager spot dishonesty easier and earlier, because a person who exhibits these thoughts and characteristics is at great risk for deceitfulness.
1. The perceived pressures the person believes they are under.
2. The perceived opportunity the person has to commit fraud.
3. The person’s rationalizations for committing the fraud counter-act their innate integrity.
Here’s an example of how the Fraud Triangle works. Mrs. K has never stolen from her employer and is indigent when others do. She wants to take her immediate family to an expensive reunion. She can’t afford it, but all of her extended family are attending. Mrs. K perceives this as a personal and financial crisis (1st side). She’s the company’s bookkeeper and there are no fiscal controls in place (2nd side). Mrs. K rationalizes that she’ll “only borrow” the money for the trip and then pay it back (3rd side).
She embezzles the money, gets away with it and keeps on stealing. Because usually, once all 3 components are present, when people commit and get away with fraudulent acts they continue the behavior. Also, they may continue behaving dishonestly if they get caught but have no or too few consequences. This is why many managers have found that giving someone “a break” usually backfires on them.
When you understand the Fraud Triangle, and use it as a touchstone for conceptualizing people’s dishonesty, it becomes easier to formulate a defense against deceit. There are many ways to mitigate each of the 3 factors, which can greatly reduce or eliminate the possibility of being taken advantage of. After all, your honesty should be an asset to your business not a liability.
Nicole Abbott – writer, educator and psycho-therapist
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