It’s June and summer is in full swing: the weather is hot, kids are out of school and the pool is open. Summertime for many also means vacation, so where are your employees going this year? Did you know the answer to that simple question could be an indicator of whether there is fraud in your business?
Sound crazy? Let’s take a look at the “fraud triangle” to find out how.
The fraud triangle is in essence an explanation of why fraud occurs. The triangle has three elements: Opportunity, Pressure and Rationalization.
Opportunity tends to manifest itself when an employee has access to a business asset and also controls the reporting of that business asset. Pressure is a motivation or incentive to do something, while rationalization is the mental justification for doing it.
When all three elements exist, an employee is more likely to commit fraud.
Opportunity is the element employers have the greatest ability to control. Eliminating opportunities for employees to commit fraud lowers the risk of it actually happening. One way to limit opportunity is through the cross training of employees to do the work of another employee when they are away from the office.
This tends to happen when people take vacation or are out sick. Thus a rotation of duties is helpful in preventing fraud in a business.
Going back to the vacation question, what does the answer tell us about an employee? In most cases the answer is not something to be concerned with, because in general people are good and behave accordingly.
However, an employee who doesn’t take vacations may be someone worth looking into. If you have an employee like this who is also very protective of their work and activities, refusing to share or let other employees help, this should be a red flag they may have something to hide.
At the other end of the spectrum, an employee going on an extravagant vacation given their level of compensation may also be something to watch for. While this may not be an issue in the particular situation, a common characteristic of fraudsters is spending beyond their means.
Do you know where your employees are going on vacation — or not going — this summer? Maybe you should.
If you would like to talk about a potential fraud situation in your business, or have questions or comments, contact Jason Thompson at (317) 608-6694 or [email protected].