Franchise Businesses Protect Yourself from Fraud

June 21st, 2011

(Buy A Franchise Unlimited, Buy A Franchise Seattle, Buy A Franchise Bellevue)

The Fraud Triangle :

Pressure
Pressure in this case means financial pressure. This can be caused by any number of things including medical bills, drug addiction or excessive lifestyle costs. Often the person committing the fraud feels they must solve their problem on their own and cannot turn to legitimate solutions for help.

Opportunity
Opportunity is when there is the ability to commit fraud. This is created by weak internal controls, poor oversight by management, failure to establish procedures to detect fraud or other factors. Of the three factors in The Fraud Triangle, this is the one that businesses have the most control over.

Rationalization
Most of us have a strong sense of right and wrong and fraud (stealing) is wrong. How does someone committing fraud justify stealing? They rationalize it through various ways. The perpetrator may believe they are justified to save a family member, especially a child. The fraudster may think they will lose everything if they don’t get the money. Often, the stolen money is thought of as loan and the person committing the fraud has every intention to pay it back. Often a dissatisfied employee believes they are owed something because they perceive they have been treated unjustly. And occasionally, a person has just lost all sense of right and wrong.

The Trust Factor
Owners of closely held businesses often don’t set up proper internal controls. Frequently, real segregation of duties is impossible–there just aren’t that many employees. Business owners console themselves with people they think they can trust in key positions. Let me say it clearly: Trust is not an effective fraud prevention strategy. Business owners think “It can’t happen here.” They are wrong. Internal frauds are always perpetrated by trusted employees. And business owners always think “I’d spot it” if fraud occurred. The truth is, they wouldn’t. Fraud is fairly easy to hide and people are amazingly creative in their schemes.

Consequences
The consequences of fraud on a business include losses, of course. But there are also creditor and vendor impacts, HR issues, legal issues, insurance repercussions, and negative public relations. In the end, it can mean the failure of the business.

The information in this article was provided by David Lightfoot of B2BCFO.

 

(Buy A Franchise Unlimited, Buy A Franchise Seattle, Buy A Franchise Bellevue)

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One Response to “Franchise Businesses Protect Yourself from Fraud”

  1. greenbusinessonlyon 29 Jun 2011 at 12:23 am

    Enlightening post with jam packed information…It’s true that frauds occur due to various reasons, and mostly done by trusted people.

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