The Threat of Fraud to Small Business

Fraud and Small Business

Did you know that in 2008, the average organization lost an estimated 7% of gross revenues due to Fraud. Also, the median loss for organizations with less than 100 people was $200,000. These statistics come from the "2008 Report to the Nation on Occupational Fraud and Abuse" by the Association of Certified Fraud Examiners. In this down economy, the potential for losses caused by Fraud is especially likely.

The question for you as a business owner is , how can I recognize who might be a potential Fraudster? In this brief article, I will share with you one of the major theories as to who would be likely to steal from you.

In the 1940's, a Criminologist named Donald R. Cressey studied over 200 embezzlers and developed a theory as to what they all had in common. The theory that he developed is known as the Fraud Triangle, and it states that there are three major characteristics of the employees who commit Fraud.

The three elements are: Opportunity, Pressure and Rationalization. Opportunity - usually it is a person in a trusted position, someone who you would probably never suspect. Pressure - usually the employee has a problem that he/she feels that they cannot share. Rationalization - the employee thinks that he/she is really not stealing, just temporarily borrowing, etc. In a future article, I will discuss each of the three characteristics in greater detail.