The components of the Fraud Triangle: pressure, opportunity, and rationalization
Pressure from outside forces, either personal financial pressure or from superiors (to perform better) may lead to fraud. When a trusted person cannot appreciate the path of achieving personal or work goals by honest means, he or she shifts to alternatives that are dishonest and usually illegal.
Some personal or external pressures
- Maintaining a certain lifestyle (or achieving one)
- Shortage of company revenue to achieve goals
- Pressure from banks to pay loans
- Gambling addictions, maintenance of drug or alcohol habits, irresponsible shopping habits, wrong or unsuccessful personal investments, etc.
Since January 2020, COVID-19 lockdowns have rendered businesses and individuals at a standstill thereby limiting economic activities. As a result, money had been hard to spend since most businesses were closed; and harder still to earn since a lot of people were forced to be out of work. These instances have created undoubted pressure on certain individuals that people in authority (business owners, government officials, managers, etc.) should watch out for.
Incentives that require better financial performance, high expectations from stakeholders despite the calamity at hand, and other currently difficult goals to achieve might impose additional pressure on management to fraudulently achieve these goals.
Inexistent or weak internal controls, lack of delegation of duties, inefficient system of checks and balances, etc. are all open opportunities for criminals to defraud a company. More than ever, the lack of technology to effectively manage and control the company remotely allows any fraudster to do what he or she does best. Safeguards such as the following would lessen the risk of fraud from within the company, especially during COVID-19 and what is now referred to as “the new normal”:
- Implement or strengthen internal controls over assets and company record keeping;
- Delegate duties and separate incompatible functions (e.g. disbursement and approval of checks); and
- Reinforce checks and balances and make sure to periodically review staff and management functions.
Read more about our previous article on the Importance of Internal Control in Accounting
Achieving transparency to counter fraud
It cannot be further emphasized how important transparency is within the company and let this be uniformly applied to the whole enterprise. Sure, employees should not be restricted from making professional judgments in their deals and transactions with a third party. But every business owner must strive to instill transparency among them.
By having transparency, company owners can minimize and prevent opportunities for fraud. This is where the powerful role of Cloud technologies comes in. Investing in Cloud-based systems to manage company operations remotely amid COVID-19 will boost control and transparency. Notwithstanding, its cost-efficiency in helping business owners and managers to achieve productivity and added value for the company.
Cloud-based management and accounting software such as Kwikdroid can offer various remote control functions to standardize, automate, and optimize all the daily operations of a company. Besides its multilayer of security, Kwikdroid enables managers and employees to perform all tasks in one single platform by integrating all company operations and customer’s information. Because of this, it becomes easier to detect when fraud is happening within the company.
Check out our Kwikdroid page to learn more about how it works and see the prices and packages we offer.
Justifying one’s actions is the backbone of rationalization. Many fraudsters do not think of themselves as criminals. Some, according to Cressey’s research, thought of themselves as doing a justified deed especially considering current crises. They may argue a good reason for committing fraud and feel justified to get “what is due to them”.
Having independent stakeholders and auditors such as governance boards, external and internal auditors, and highly involved business owners that continuously check for both errors and good practices could help correct the wrong notions.