By Sherry McCourt, CFE
www.sherrymccourt.com
Monday May 18, 2009

So what does a person who steals from their employer or from people they do not even know look like?
They are capable of taking dollars to millions of dollars from unsuspecting individuals and still live among us undetected.

These people do not look like evil monsters – they look like your next door neighbor, your banker and even your minister, priest or pastor. “They” have your trust or at the very least access to people you trust. “They” are people that you would never think to suspect and you are always surprised when you learn of their deception and theft.

The Fraud Triangle is much like the fire triangle we learnt of as a child in school in that there are three elements to make a fire. There are three elements of fraud required to commit a crime. And just like you cannot always predict fire you cannot always predict fraud but you can practice prevention!

The three sides or elements of the Fraud Triangle are: Pressure – Opportunity – Rationalization

Pressure = Cause

Pressure typically means medical bills, addiction problems, living beyond ones means, greed or any financial need or problem.

These needs are typically viewed as private so the fraudster feels that they cannot share the “problem” with anyone.

Opportunity = Ability

Opportunity allows the fraudster to commit the crime virtually undetected. When there are weak internal controls and poor management oversight, opportunity is created for the employee. Other opportunities are created when the fraudster holds a position of authority or trust and does not have a procedure or control element to govern their actions.

Organizations have the ability to put in place preventative processes and fraud detection controls thus having the ability to reduce “Opportunities” for the employees to commit fraud.

Rationalization = Rationalizing or Justification

The ability one has to rationalize his behavior is a critical element in the fraud triangle – meaning when a person is able to justify in his mind that his actions (stealing) is acceptable he is able to continue to steal without feeling the “normal” guilt you and I feel.

Most rationalizing involves:

A sense of entitlement (you work hard, you are under paid etc),

Desperation (you feel like you will lose everything or you need to do it to save the family),

Or they do not see the theft as stealing but more as borrowing (you really believe that you will pay the money back before anyone realizes it is gone).

Can you spot a fraudster?

You will note that I carry the designation of “CFE” – This stands for Certified Fraud Examiner and is designated by the Association of Certified Fraud Examiners, (ACFE). ACFE is an amazing worldwide association and I encourage you to visit their website to learn more about CFE’s and the Association itself. www.acfe.com

You do not need to be a Fraud Examiner to spot a fraudster – Let’s look at some of the RED Flags of Fraud:

5 Typical Personalities
They are living beyond their means
They are controlling and unable to relax
They never take vacation or sick leave (if they do it is a short amount of time)
They have a close relationship with their vendors and suppliers
They do not like their work or performance reviewed

5 Typical Pressures
Family medical bills
Living beyond their means – “keeping up with the Jones”
Excessive Gambling
Substances addiction (alcohol or drugs)
Lawsuits (Civil, Criminal or Divorce)

5 Typical Behaviors
They appear to be buying more “things” (clothes, jewelry, houses, boats, motorcycles, etc)
They behave moody, irritable and unreasonable
They works a lot, they start coming in early and leaving late, they will not take time off or only in short increments when forced too
They start talking about financial concerns or family obligations
They turn down a promotion

It is important to realize that people will exhibit some of the signs, on occasion, and no fraud is being committed. If a person is exhibiting multiple flags from all three areas, further investigation should be completed by a trained professional.

Now do you think you could spot a fraudster?

Most fraudsters are initially flagged not by a trained professional but by an unsuspecting coworker or temp worker who happened to notice that something was “not right”, either by behavior or by accounting irregularities or both.

In the end, fraud affects all of us.

All of us pay the price for the fraudulent insurance claim or the tax evader or the person who steals from investment funds or the employee who steals monies from the petty cash fund.
In the end we are all responsible and we are all accountable for our actions.

Being a fraud examiner is me doing my part, will you do yours?

By Sherry McCourt, CFE
www.sherrymccourt.com

Monday April 6, 2009

During my 12+ years at the helm of a private security company I had seen individuals inflict a lot of unnecessary cruelty towards one another – but there are some that stand out as being too close to home… literally!

Can you imagine having your worst nightmare living right beside you? One where the courts would later liken your “described effects typical of civilians caught in a war zone: post-traumatic stress, loss of sleep and appetite, anxiety, phobias, panic attacks, marital strain, depression.” Quoted from the Globe and Mail reporter, Anthony Reinhart in his article “You think you’ve got bad neighbours”.

This particular story is based on a neighbourhood in Toronto, Ontario but I can assure you that this type of violence occurs in every class of neighbourhood in all corners of the world.

So next time you see your neighbour, take a moment and say hello, perhaps pick up his paper or share a candid moment while taking out the garbage. It is the small relationships that we build in our daily lives which give us peace.

Be safe my friends!

Sherry

(from a study conducted by ACFE – Association of Certified Fraud Examiners)

Gender
Typically males are more than twice as likely to commit fraud as their female colleagues. These losses due to fraud by men are more than twice as great as frauds perpetrated by women. One hypothesis: with males holding more management and executive level positions- males have a greater opportunity to commit costly fraud.

Do you think that this fact would change if woman held higher level positions – is the fact that higher amounts of loss due to fraudulent activity is because of gender or opportunity?

Age
The average fraudsters are over the age of 40. Generally speaking, older professionals often occupy positions with authority and have more access to company resources. In fact, fraudsters in their 50’s and beyond averaged a median loss of $500,000 – this is twice as many as any age bracket below them.

I once again wonder if the fraudsters documented age is due to opportunity. Would these same activities occur if the average age of a CEO is 30?

Team work?
Most fraud schemes the perpetrator acts alone.
If the scheme involved a collusion of two or more parties, the fraud was much more costly, to the tune of 4x higher compared to when a perpetrator acts alone.

Perhaps the collusion enables employees to better circumvent controls that might stop a single perpetrator?

Education and Position
Generally the higher the education level, the more costly the fraud. Most of the fraudsters work in the accounting department when they execute their scheme and have the access to assets and the ability to conceal the fraud.

Executives and upper management come in second.

Behavior Flags
The most common flags are
• living beyond one’s means,
• struggle with financial difficulties
• “wheeler-dealer attitude,”
• control issues (unwillingness to share duties), or
• personal problems, such as a divorce
Other red flags might include irritability or defensiveness, addiction problems, past legal problems, refusal to take vacation and complaining about inadequate pay.

The presence of these characteristics does not in and of itself signify that a fraud is occurring or will occur in the future. That is where I come in, as an anti-fraud professional I am trained to understand and identify the potential warning signs of fraudulent conduct. My designation as a Certified Fraud Examiner provides me with the expertise needed to detect, prevent, and combat fraud at every level.

You can learn more about CFEs at www.ACFE.com.

Stay Safe,

Sherry McCourt, CFE
www.sherrymccourt.com