Fraud prevention experts have developed what is known as the 10-10-80 Rule which means that 10% of employees will never steal, 10% will always steal, and 80% may steal depending on the circumstances. Generally, the following three elements must be present for someone in the 80% category to commit fraud: (i) financial pressure, (ii) opportunity, and (iii) rationalization. Frequently, it is also those employees who have gained the trust of leadership by working at the company for a few years who engage in fraud/theft/misappropriation. Fraudsters generally have the same psychological traits, including creativity and cleverness. But the key is to identify unusual behaviors that signal illegal behavior, such as displays of superiority, resentment toward top management, egocentric personality, volatility, deceptive acts and acting without a conscience. These individuals also are generally outgoing, friendly and passionate, which makes negative traits easy to hide. Fraudsters can sometimes sway others by seeking out those who share their same social backgrounds and are easily manipulated. Think Jordan Belfort and Bernie Madoff— masters of spin who garnered credibility and were genius schemers, concealers and converters. While setting policies and controls within your company are important to discourage theft, eliminating opportunities for theft altogether is more challenging. It is important to understand that good leadership alone cannot stop all fraud, but it can vastly improve deterrence. Another tip is to train staff how to identify “red flags.” A red flag is an observable act or concealment strategy that causes pause, such as obvious data manipulation, backdating, lax controls, unusual timing of transactions, segregation of duties, and failure to reconcile accounts. Diligent companies should strongly consider implementing new workplace policies, establishing employee support programs, and conducting a fraud risk assessment to identify areas of existing weaknesses.
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