Fraud Author Tracy Coenen

It is eye-opening to trace a fraud back to its roots or to talk to someone who will be completely honest about a fraud she or he committed. You get a chance to see how easy it was to commit that first fraud.

It was small, and therefore easy to rationalize in the mind. Maybe the thief decided it was just “borrowing” or rationalized that the money represented excess funds that no one would miss. Either way, a small sum of money was pretty easy to justify.

Many frauds start with an error, which makes the process of justification even easier. That first fraud wasn’t her or his fault anyway! Someone in a position of trust sees that an error wasn’t caught by the company’s system of checks and balances. Maybe a bank account didn’t balance, but no one said anything about it. Or an accounting entry was made to an incorrect account, but no one ever noticed.

These types of oversights can tempt an employee to take advantage of the weaknesses in the system. The employee typically commits that first fraud, and then looks for opportunities to further manipulate the system where the monitoring is lax.

Other employees purposely try to exploit the system the first time. They test the system with small transactions to see if anyone notices. If someone flags the item, the dishonest employee can claim it was a mistake. With a small dollar amount at stake, no one will think much more about it.

If the manipulation is not caught by a coworker or supervisor, the new thief feels comfortable enough to do a transaction that is a little bigger. Frauds of this type can grow quickly as the employee becomes comfortable with the lack of controls to detect these types of transactions.

Clearly, it is imperative to monitor and improve internal controls to prevent and detect abuses in the system. Yet small frauds, the ones that may be the precursors to bigger frauds, are a low priority to companies. The cost of looking for small frauds seems to outweigh the benefits in the short run. However, that’s not truly the case.