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Part 2: Three Risk Factors That Increase Employee Fraud
June 2009 -
When does employee fraud occur?
It is commonly accepted that the presence of the three elements of the “Fraud Triangle” increases the risk of employee fraud:
Motivation: The employee is somehow motivated to commit a fraud. Economic factors such as personal financial distress, substance abuse, gambling, overspending, or other similar addictive behaviors may provide motivation. The current national economic recession may serve to increase the incidence of such financial motivations.
Opportunity: The employee has sufficient access to assets and information that allows him or her to believe the fraud can be committed and also successfully concealed.
Rationalization: The employee finds a way to rationalize the fraud, convincing themselves that their actions are really justified. Such rationalizations can include perceived injustices in compensation or promotions, the idea that they are simply “borrowing” from the company and fully intend to return the assets at a future date, or a belief that the company doesn’t really “need” the assets and won’t even realize they are missing.
In the context of facility management and property management, the risk of fraud does not usually relate to theft of real property, inventory, or other physical assets, but rather to the misappropriation of cash. These risks include the diversion of funds such as rental payments prior to their receipt by the company, or by schemes to wrongfully divert funds already held by the company through direct theft, payments to fictitious vendors or employees, kickback schemes, and the like.
Preventing Employee Fraud
Part 1: Facility Managers and Property Managers Are Not Immune To Employee Fraud
Part 3: How Facility and Property Managers Can Reduce Employee Fraud