The 3 Ingredients for Fraud

It is often believed that people who work for a non-profit organization would never do any intentional wrongdoing because the organization is helping people.  This could not be further from the truth.  Given the right circumstances, people will fall in the temptation of committing fraud.  Here are 3 ingredients for fraud

1️⃣ Opportunity – Refers to circumstances which allow fraud to occur.  It is generally the result of poor internal controls such as lack of separation of duties, no written policies, poor oversight, and unethical behavior from the top.  This is the only ingredient organizations have control over.

2️⃣ Incentive/Motivation – Pressure to commit fraud.  This generally stems from a personal reason such as an unexpected bill, a partner job loss, or wanting nice things to keep up appearances.

3️⃣ Rationalization – Represents the person justification of fraud.  The person generally makes statements such as “They are underpaying me”, “Nobody will ever know it’s missing” or “A lot of money is wasted anyway”.

Being aware of the above will put you in a position to prevent fraud from occurring in your organization and be on the lookout for such behavior.  Many people will not commit fraud, but it is the small number of people who will and generally in a big way.