Content area
Full text
Simple Controls Can Reduce Opportunities
According to the 2010 Report to the Nations on Occupational Fraud and Abuse, "Small organizations are disproportionately victimized by occupational fraud. These organizations are typically lacking in anti-fraud controls compared to their larger counterparts, which makes them particularly vulnerable to fraud." (Association of Certified Fraud Examiners [ACFE], July 2010, www.acfe.com/rttn/rttn-2010.pdf) Antifraud or internal controls provide necessary checks and balances to help businesses prevent or detect fraud and safeguard assets. Internal controls are important for businesses of all sizes, but they tend to be less prevalent in small, private businesses that have few employees. There are many internal controls that a small business can - and should - implement to deter fraud, even with staffing constraints. Having proper internal controls in place also helps businesses conduct operations more efficiently and effectively.
Before discussing specific internal controls, it is helpful to examine the factors that might lead an employee to commit fraud against an employer. While the title for the employee varies from business to business, this article will refer to the office manager as the one individual primarily responsible for handling the majority of financial responsibilities in a small private business.
The Fraud Triangle and the Fraud Diamond
The fraud triangle reveals three necessary mechanisms - perceived pressure, opportunity, and rationalization - that typically must exist simultaneously for fraud to occur. The fraud diamond enhances the fraud triangle by including a fourth mechanism, capability. Understanding the fraud triangle and the fraud diamond will help small-business owners understand why it is important to be more involved in providing oversight of the accounting processes in the business and why internal controls should be implemented.
Perceived pressure. This first component is represented by some need for money, whether an actual need or just a desire for more funds. Perceived pressure serves to provide an incentive for a potential fraudster to commit fraud. Perhaps the employee has a debt that cannot be paid, has a medical emergency, desires items outside of his financial comfort zone, or has some other pressure causing him to at least temporarily believe he needs or desires additional money. When the employee does not have a legitimate way to raise the additional funds, he might turn to stealing from his...