Are All 3 Components of the Fraud Triangle Present in YOUR Organization? [Video]

In today’s Monday Money Moments video, learn which of the three components of the Fraud Triangle is 100% under YOUR control, to help prevent employee theft and fraud in your organization.

Transcript:

“Hello, and welcome to Monday Money Moments with myself, your host, Dana Miller of Executive Financial Insights. 

We are continuing our topic for the month on employee fraud prevention. 

Tonight’s discussion will be around the fraud triangle. 

It is a construct created by Dr. Donald Cressie, who was a criminologist who studied embezzlers and determined that these three components need to be present for fraud to happen in your organization. 

One of which of these components is completely under the control of the organization. 

So let’s get started. 

The fraud triangle includes three components:

1. Motive and pressure
2. Opportunity (which is the one organizations can control)
3. Rationalization

So we’ll come back to motive and rationalization, and we’ll start with opportunity. This is what you in the organization can control. And this involves things like strong internal controls, strong accounting controls, and a tone from the top of one of ethics and integrity.

The accounting controls, as we’ve talked about, have to be separation of duties.

 And for example, taken straight out of the headlines just two months ago, August of 2021, a CFO of a manufacturing organization in Minneapolis, Minnesota stole over $930,000 over six years from that organization (he was hired there in 2014). He was let go during the COVID pandemic in 2020, which is when and how the company determined and discovered his theft. 

He’s been sentenced to two years in jail, which is terrific, but how did he do this? Well, poor internal and accounting control. He had access to writing checks, signing checks, recording the checks and reconciling the checks so he could hide all of his activities in the books. 

So let’s move on from opportunity and next comes motive and pressure. 

And so we’re not sure what this particular gentleman’s motives were, but other motives could be offering bonuses for financial performance or investors and analysts expecting certain numbers or certain results from the organization. 

And as we talked about this other CFO who stole from this family owned manufacturing company, he had his own motives and it may have been an addiction. It may have been drugs. It may have just been that he wanted the money. We don’t know what it was, but we do know that he had his own motives and he used the opportunities that he saw in the organization and used also the third component of our fraud triangle.

That’s rationalization, such as saying, oh, “I will return the money. I won’t get caught. I deserve it. I was mistreated. I was underpaid. I see other misgivings happening in the organization and they’re doing it. So, so can I.”

So there’s all kinds of rationalizations that employees can use when they are stealing from you. So we can’t control that. 

We can’t control what’s motivating them to steal from you, but we can control the opportunities. 

So that’s all I have for you tonight. 

If you’d like to have more opportunities to learn and tips for fraud prevention in your organization, join me at executivefinancialinsights.com, and please subscribe to this channel. And I will see you next Monday for Monday money moments. Thank you.”