Learning How to Prevent Business Fraud | OneMega.com
loader image
Learning How to Prevent Business Fraud

Learning How to Prevent Business Fraud

Business & Career | July 27, 2021
  • 3

Businesses have to always be careful about fraud. Here’s how you can detect the early stages of business fraud and how to prevent it.

The COVID pandemic has resulted in many companies trying to reduce non-essential operations to cut burgeoning costs in response to the downward spiral of revenues. These cost-cutting measures, however, have unintended consequences.

In some cases, internal controls are weakened because certain positions or processes were deemed non-essential. Thus, these were pared down to the bare minimum. Business processes are also being streamlined and consolidated to reduce manpower costs. Additionally, certain positions are being eliminated and incompatible responsibilities are being assigned to the remaining personnel.

For example, in one company, sales personnel were tasked to monitor sales, issue receipts, and collect payments because the cashiers’ or collectors’ positions were reduced or eliminated. This resulted in the absence of “check and balance” controls. Sales personnel are thus exposed to undesirable opportunities, such as underreporting sales and intentional pocketing of collections— all without being detected.

Business meeting with employees

A Look at Business Fraud

As a Certified Fraud Examiner, myself, I have encountered many fraud cases where employees who perpetrated the fraud claimed that they were “good people” and that they were just tempted to take the money because of emergencies (such as someone in the family getting sick or mounting debts because of insufficient income). While it is true that a person who committed the crime has no one else to blame but himself, I believe that companies should always strive to ensure that their operations are not susceptible to potential fraud schemes.

I also believe that management should “protect” their employees from committing fraud by installing the necessary protocols in their business. Fraud detection and prevention measures should be a top priority—especially in these pandemic times where many employees or even outside parties will be tempted because of reduced income and/or a lack of job opportunities.

But how can a company—that is also trying to make both ends meet—make sure that it does not commit the mistake of sacrificing controls in favor of cost-cutting measures? The simplest way, I believe, is for the company to ensure that it does not expose its employees to the “Fraud Triangle.”

Employees discussing with management

The Fraud Triangle, Explained

The Fraud Triangle is a proven concept wherein fraud in a business setting can only occur if three (3) elements are present—Motivation, Opportunity, and Rationalization (MOR). Let me explain below.

Motivation

The first element, Motivation, refers to the employee mindset. For example, if an employee is being pressured to achieve unrealistic targets, then he or she might be forced to think about cheating to achieve the targets. If employees know that the company is cheating customers by delivering substandard products, they might think that cheating is okay.

An employee might also be motivated to commit fraud if he or she has personal issues, such as mounting hospital bills, addictions, debts, and other financial-related problems. 

Opportunity

The second element, Opportunity, refers to circumstances that allow fraud to easily occur. This is the only element that a company exercises complete control over.

Examples that provide opportunities for committing fraud include weak internal controls, such as lack of supervision and poor documentation of processes. It also includes poor separation of duties—meaning putting only one person in charge of reporting, recording, and safekeeping theft-prone assets like cash and inventory. 

Employee carrying inventory

Rationalization

Finally, Rationalization is the third element. Rationalization refers to an individual’s justification for committing fraud. Oftentimes, these justifications are lame excuses that exist only in the minds of the employee who committed the fraud.

Examples of common rationalizations are “there is no other solution”, “the company is treating me wrongly”, “I am being underpaid”, “I needed the money to pay for my bills,” or “the company is doing well, but they’re mistreating employees.”  Rationalization occurs only once during the first time the employee commits fraud. After that, rationalization is no longer necessary to continually commit additional fraud. 

How to Prevent Business Fraud

So, how can a company prevent an employee to commit fraud?  The answer is to “break the legs” of the MOR triangle. This means that the company should always be on the lookout if an employee is exposed to the Fraud Triangle.

For example, if management knows that a cashier is experiencing a family crisis—such as a family member undergoing expensive medical treatments—they should determine if he or she might be tempted to commit fraud. Management should also assess the situation and determine if the person is exposed to the Fraud Triangle.

First, take a look at Motivation—she is probably motivated because of the mounting hospital bills. Second, check for Opportunities. She is occupying a money-handling position, which provides an opportunity to commit fraud. And third, Rationalization—she could “rationalize” or justify in her mind that stealing money to pay for the hospital bills is the only solution to her problems. But of course, in reality, there could be other solutions such as fund-raising, promissory notes, cash advances, salary loans, and the like.

Once management determines that an employee is exposed to the Fraud Triangle, the company can simply “break its legs” by removing or eliminating any of the elements. In turn, the employee will not be able to commit fraud. In the aforementioned example, the easiest one to eliminate is the Opportunity—because the company has total control over it.

For example, the company can re-assign the cashier to a position that does not require him or her to handle cash. On the other hand, the company can also remove the other elements—Motivation and Rationalization—by influencing the employee’s mindset or doing something about it.  Management could help in paying the hospital bills. It can also arrange for employee salary loans or assist in fund-raising efforts which could be a good thing to do.

Overall, it is important to note that the company needs only to break or eliminate one of the legs of the Fraud Triangle. This will ensure that the potential fraud will not occur.

Teamwork in business

The State of Businesses Amid the Pandemic

The COVID pandemic has truly strained both the company and its employees, thus putting everyone in a tight situation. Despite this, I believe that companies should exert effort in making sure that employees are not led to stray. It is, after all, the company’s ethical responsibility to protect its employees from being tempted to commit fraud.

Fraud prevention by assessing exposure to the Fraud Triangle is always the best practice compared to fraud detection, wherein the fraud has already been committed and nothing can be done about it except to run after the ruined employee. If a company truly cares for its employees, its management should not stay put and allow the Fraud Triangle to destroy the reputation and lives of its employees. So, management, please be vigilant. Your employees’ future may be in your hands right now.

And to everyone, keep safe always.

Management with employees amid the pandemic

Photos from Pexels.com

RELATED ARTICLES:

5 Ways to Professionalize Your Business

Business Risk Management at This Time of Pandemic

5 Ways to Make Working From Home Work For You

Juancho is the Chairman of Golden Falcon Advisory Services, Inc., an investment and financial management firm that provides advisory services to high-net-worth individuals (HNWIs) and business owners. Juancho is also currently the CEO of Chan Robles & Company, the accounting and business consulting arm of the Chan Robles Group.
More from Juancho Robles

OneMega.com is your all-in-one access pass to exclusive content from a wide variety of lifestyle experts, thought leaders, influencers and leading content creators here in the Philippines and around the world. OneMega.com is a prestige media brand of One Mega Group, Inc.

ONEMEGA EDITORIAL TEAM

EDITOR-IN-CHIEF Marga Medrano-Tupaz
JR ASSOCIATE EDITOR Diane Nicole Go
GROUP CREATIVE DIRECTOR Jann Pascua
GROUP ART DIRECTOR Marc Pagdilao
MULTIMEDIA ARTIST Denielle Carag
GROUP PUBLISHER Janine Recto

CONTRIBUTORS

FASHION Amina Arañaz-Alunan Jojie Lloren Robby Carmona Patty Ang Candy Dizon Francis Libiran | BEAUTY Dr. Vicky Belo Kim Reyes-Palanca Marie Lozano Firas Abboud Jude Hipolito and Rose Velasco (JuRo) Jigs Mayuga | LUXURY Bianca Salonga JP Tuason Jeanette Ipapo-Tuason Marlon Stöckinger | TRAVEL Vern Enciso Ferdi Salvador Marie Field-Faith | TECH & GADGETS Carlo Ople Enrique Miranda Gerry Sy | HOME & DESIGN Geewel Fuster Kitty Bunag Tessa Alindogan Vianca Favila | BUSINESS & CAREER Franco Saycon Venus Navalta Eric Dee Dr. Z Teo Pinky Tobiano Atty. Connie Aquino | ENTERTAINMENT Girlie Rodis MJ Marfori G3 San Diego Georcelle Dapat Sy / G-Force | FOOD & ENTERTAINING Aüa Chino Hernandez Happy Ongpauco-Tiu Nina Daza-Puyat Robby Goco JJ Yulo | PARENTING Cat Arambulo-Antonio Paulyne Fermin Michelle Aventajado Jerika Ejercito Aguilar Celine Gabriel Lim | FITNESS & WELLNESS Nadine Tengco Harvie de Baron Sara Black Arnold Aninion Teresa Herrera Anthon Tanya Aguila Simon Greatwich | WEDDINGS Marbee Shing-Go Amanda Tirol Charisse Tinio Jason Magbanua Gideon Hermosa Robert Blancaflor | YOUTH Chris Nick Milka Romero Miko Tiu Laurel Janeena Chan

ADVERTISING

SALES DIRECTOR Maureen Alexis Busto
ACCOUNT MANAGERS Paulin Mata,
Chloe Tapucar, Jasmine Co Leng, Ivan Panganiban,
Anna Chua, Lexi Malongga

MARKETING AND ADVERTISING SERVICES

Marketing Communication Manager Pam Rodriguez
Ad & Promo Manager Brent James Castro
Copywriter / Social Media Associate Rowan Palomares
Social Media AssociateKyla Nicole Taal
Multimedia Artist Agatha Romero
Producer Elishua Balinton
Video Editor Andrew Ciudad

VIDEO & EVENTS

Sr Video Editor Jasper Bermejo
Video Editors Kenneth Dimaano
Video Editor / Producer Regina Aceron
Audio Visual & Technical Assistant
Andrew Ciudad

CREATIVE SERVICES

Creative Services Supervisor Kristoff Sison
Multimedia Artists Gari Rivera, Elmer Pereira,
Niel Jhed Ibay
Copywriters Peaches Garcia, Althea Villanueva,
Roanna Alonzo,
Chad Losanta, Christina Zabat

PRODUCTION & LOGISTICS

Production & Logistics Manager ERICA LUNA
Booking Associate Mae Talaid, KZ Francisco
Pull Out Coordinator & Production & Logistics AssistantMJ Almero

STUDIO & IMAGING

Production and Studio Manager Ed Simon
Photographer Kieran Punay, Excel Panlaque
Final Artists Eric Gallego
Cameraman JR Ramirez

SOUND AND MOTION

Sr Video Editor Jasper Bermejo
Video Editor / Producer Regina Aceron

EXECUTIVE OFFICE

AVP for MARKETING & PUBLISHING Marga Medrano-Tupaz
VP for CONTENT Peewee Isidro
CHIEF EXECUTIVE OFFICER Archie Carrasco

ONE MEGA GROUP, INC.

PRESIDENT Suki Salvador
CHAIRMAN Archie Carrasco
FOUNDING CREATIVE DIRECTOR Lorraine Belmonte
FOUNDER Sari Yap

SALES

AVP - Business Development Carmelli Daet

CONSUMER MARKETING AND CIRCULATION

Head of Consumer Marketing and Circulations Arriane Sanchez
Consumer Marketing Associate Champ Bersales
Multimedia Artist Hilrey Batolan

HUMAN RESOURCES

HR Manager Mairen Buan
Organizational Development and HR Tech Supervisor Lorenzon Miguel Barbeyto
HR Supervisor Vanessa Orpilla
Sr Payroll Associate Angielica Baril
Recruitment Associate Michelle Grace Flores

MIS / IT

Web Development Manager and MIS OIC  Carlo Tumaliuan
Web Developer Supervisor  King Villarta
Jr Web Designer  Jen-Lyn Dumlao
Senior IT Associate  Jomer Calleja

ADMINISTRATION & PURCHASING

Admin & Purchasing Manager Avy Lagarto
Office Support Associate Jorean Ann Flores
Company Driver Bernard Dela Cruz

LEGAL

Legal Counsel Atty.   Homer Alinsug
OIC-Corporate Legal   Avy Lagarto

FINANCE

Finance Manager Rachel Cabagua
Finance Supervisor Janin Tabora
Credit & Collection Supervisor Nainine Buenaobra
Senior Treasury Associate Maileen Capilitan
Senior Accounting Associate John Dela Torre
General Accounting Associate Ruffa Dela Pena
Accounting Associate Zarah Mira

CORPORATE AFFAIRS and BUSINESS EXPANSION

Head of Corporate Affairs and Business Expansion Rodolfo Palanca Jr.
Copy Chief Andrea Eliza Santos
Corporate Affairs Associate Margaux Pua
Creatives Associate Alecs Beltran

EXECUTIVE OFFICE

Chief Operating Officer Ma. Cecilia Ngo
Executive Assistant to the COO Thea Pamela So

AGC POWER HOLDINGS CORP.

Chairman & President Archie Carrasco