Companies of all shapes and sizes are vulnerable to fraud within their own organization. It’s an unfortunate fact of business that can cost companies hundreds of thousands — or even millions — of dollars over a long time. To combat the issue of internal fraud, many companies chose to hire a forensic accountant — a numbers specialist trained to look for inconsistencies, suspicious data in the books, and other signs of financial wrongdoing within the company. The truth is that all companies that employ multiple people may have a need for a forensic accountant, regardless of the organization’s size, industry, or revenue.
The Fraud Triangle
A prominent sociologist named Donald Cressey modeled the psychology behind internal fraud on the individual level with a concept he called The Fraud Triangle. The Triangle is comprised of three interconnected factors that encourage a person to commit fraud within the organization.
• Incentive for fraud is any personal reason for needing large amounts of money quickly, such as debts, addiction, or legal troubles.
• Rationalization is the psychological process the a perpetrator of the fraud uses to justify his or her behavior, making it easier to go from thinking about it to putting a plan into action.
• Opportunity is any available pathway for the individual to commit fraud with the possibility of not getting caught.
Not all people who commit fraud fit neatly within the Triangle, but being able to identify any of these issues is among a forensic accountant’s duties.
Fraud Through Technology
Sensitive data gets more distributed and potentially easier to access as more companies switch to pure-digital data models. There’s a great deal of risk involved with online cloud data management as perpetrators of fraud may be able to get access to and manipulate financial data from outside the office and on a variety of devices. Forensic accountants are well versed in the weak points associated with digital data and how to close loopholes to give companies all the convenience of the cloud while minimizing the risk.
Fraud as a Human Resources Issue
The first line of defense in the fight against fraud is proper prospective employee screening. Often times, fraud is committed by employees who seem trustworthy or are even long-serving, reliable workers. Forensic accountants help a company’s HR department develop more robust screening tools for prospective employees and more watchful best practices for monitoring employees who have been with the company for a long time.
Fraud in Large Companies
Large and small companies are equally at risk of fraud, though they tend to find cases of fraud in different places and for different reasons. In large companies, it’s more common for fraud to crop up because data tends to pass through a lot of hands throughout a project life cycle. Information leaks; inconsistencies in redundant bookkeeping and otherwise unnoticed data breaches are prime targets for fraudsters and the forensic accountants who work to identify them. Even if a large company doesn’t believe it is the victim of fraud, forensic accountants are ideal consultants for creating best practices documents and training to minimize the threat of fraud in the future.
Fraud in Small Companies
Smaller organizations have to compete with different problems in the fight against fraud. For budgetary reasons, small organizations often place bookkeeping in the hands of just a few people (even just a single person), creating few opportunities for redundancy and opening up the books for easy manipulation. The aim of forensic accounting in a small company is to create more thorough safety measures to make sure more than one person has to confirm sensitive financial information while teaching others in the organization how to look out for the warning signs of fraud.
There are many potential avenues for fraud and embezzlement within companies of every size. Whether it’s manipulation of financial records, working around government policies or breaching digital data security, the best tool in a company’s arsenal against fraud is a forensic accountant. Bringing in an expert to identify problems when they arise and prevent them from happening in the future is a comparatively small investment that can save a company untold amounts of money and stress down the line.