How Can Fraud Cost You Your Business? As an attorney, you are not immune. The USA is known for many things. It is “the land of opportunity.” It is the “land of the free and home of the brave.” It is the birthplace of diverse and life-changing innovations. It is also host to more fraud than any other country in the world. The risk of fraud and how it can cost you your business is very real at every level of every county in every state in the USA, including yours. Although there are many different types and faces of fraud, there are certain commonalities. One is denial. Fraudsters know that most people have a hard time believing that fraud can occur in their business, deliberately perpetrated by their co-workers, employees, and friends. Denial keeps business owners from looking more closely. It keeps co-workers from reporting suspicious behavior and employers from asking more questions. It can be difficult to break free from denial, but the health of your business depends on it. Another common denominator of fraud is the existence of “red flags.” Red flags are behavioral cues of fraud that can help you detect and prevent fraud from occurring in your business. In the 2010 Report to the Nations on Occupational Fraud and Abuse the most commonly noted red flag behavior was “Living Beyond Means.” It was rated the highest behavior involved in asset misappropriation schemes. It ranked 4th in financial statement fraud schemes, 2nd in corruption schemes, and was noted as the most common behavior for fraud perpetrated from the positions of Owner/Executive and Manager, and 2nd most common for Employee. Would you recognize “Living Beyond Means” in your own employees? “Living Beyond Means” refers to dramatic changes in a person’s lifestyle and/or material possessions. Someone who suddenly buys a new car, takes an expensive vacation, or acquires an inordinate amount of material goods fits the description. The second most commonly noted red flag across all regions in the 2010 Report to the Nations was “Financial Difficulties”. It was noticed as the most common behavioral red flag for someone in the position of an employee, and ranked 2nd in asset misappropriation schemes, 4th in corruption schemes, and 3rd in financial statement fraud schemes. Fraudsters are commonly described after the fact as exhibiting “control issues” and an unwillingness to share duties. They need to control as much information as they can in order to carry out their schemes undetected. Other behavioral “red flags” include:
It is important to note that none of these behaviors in isolation is a definitive indication of fraud. It is the constellation of red flag behaviors that bears investigation, especially when it coincides with financial loss, inventory erosion, and/or unexplained disappearances of company property. (While this issue may not directly be related to current services offered by UCMJ Investigations, the issues are relevant to the continued viability of your legal firm. they derive from our archived articles and are presented as a public service.) ** If you have a case and are not sure if an investigator can help or contribute to your case, contact us for a free review. ** |
