why work place fraud

The financial impact on an organization of these so-called “whitecollar” crimes can be devastating. Understanding the impact of workplace fraud, and the potential losses associated with fraud and establishing effective loss control measures are critical for companies from cost, cultural, and risk management perspectives.

Workplace fraud is a common, everyday occurrence. Every business—large or small—is vulnerable to these crimes.

Workplace fraud can have a substantial impact on a business's “bottom line” and even on its continued survival and success.

What motivates people to commit fraud?

As an experienced Accountant, I have identified three elements that are often present when fraud occurs. These three elements form the “fraud triangle.”

“Opportunity” refers to the situations and circumstances that make it possible for fraud to take place.

Opportunity is, generally, the element that a business can most effectively influence, impact, and control. An important action a business can take to reduce crime exposure is to assess the opportunity for fraud and respond accordingly. Responding to fraud risk includes development and use of effective internal controls to reduce, mitigate, or even eliminate opportunities for fraud.

“Pressure or incentive” helps explain why and when fraud occurs. Fraud takes place when fraud pressures or incentives outweigh, and ultimately overcome, the pressures or incentives to act honestly. Thus, pressures or incentives can become the motivation to act fraudulently. Pressures and incentives to commit fraud are often associated with: Lifestyle issues (living beyond one's means). Personal debt (e.g., rent payment, children school fees, gambling

Rationalization” refers to the need for people to somehow justify their fraudulent actions in their own minds. A person involved in a fraud attempts to psychologically accept his/her own actions and emotionally “shift the blame” to anyone or anything other than him/herself.

Common rationalizations include: Entitlement: “They don't pay me what I'm worth. I have this money coming to me.”

Anger or revenge: “The company has treated me poorly; now they're going to pay.” Minimization: “I'm not taking very much. The company can easily afford it.”

Moral justification: “Everyone else is doing it, so it must not be so bad to do this.” Rationalizations are not generally known to others and therefore are usually difficult to detect.

In addition, persons with low moral integrity may feel little need to rationalize their behavior.