Understanding and minimizing the chance of employee fraud

Do you ever wonder if any of your employees are capable of committing fraud? According to Donald Cressey, PhD, trusted persons can become trust violators if three factors are present. These factors are referred to as the “Fraud Triangle”.

  1. A secret need for cash. Whether it’s excessive debt or a gambling obsession, this need is typically socially unacceptable and therefore not satisfied by ordinary means.
  2. Justification. This involves the embezzler “reframing” his or her activity to become consistent with their self-image. This version of the events then becomes that he or she is doing something necessary, not wrong.
  3. Opportunity. If this component is not present, the other two are irrelevant. As the owner, you control the opportunity (or should control it), so this component becomes key for you.

From screening activities like employment applications, references, interviews, background checks, drug testing and internet searches, there are plenty of ways you can try to minimize the risk of hiring a potential fraudster. However, nothing can totally eliminate the chance. As such, you must minimize the opportunity for a previously honest employee to compromise your systems by implementing controls, such as a separation of duties. This means that tasks must be separated so that an employee is neither able to perpetuate the fraud, nor cover it up.

If you’re not certain if you have sufficient segregation of duties in your office, ask for an assessment by your ShindelRock tax professional.

Behind the Fraud Triangle: Understanding the origins of embezzlement in dental practices