David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, forensic accounting, and marital dissolution services in Philadelphia and the Delaware Valley. 

In this blog, the second of a three-part series, Certified Fraud Examiner David Anderson of David Anderson and Associates, a firm offering forensic accounting services in Philadelphia, reviews the Fraud Triangle – a combination of three factors – Opportunity, Pressure, and Rationalization – that must be present for a fraud to occur. 

If even one of these three factors can be eliminated, the potential for fraud and the need for a fraud investigation is either significantly reduced or goes away. After reviewing Opportunity in the first entry last week, here Anderson takes a closer look at Pressure. He will discuss Rationalization in next week’s conclusion of this series.

Pressure refers to the personal situation of the potential fraudster that can induce the person to commit the fraud.  Even if the opportunity to commit fraud is present, if the person feels no pressure to commit the fraud, he or she won’t.

“Eliminating such pressures,” said Anderson, who provides forensic accounting services in Philadelphia, “can be key to a successful fraud deterrence program.”

The primary pressure experienced by a potential fraudster is the need for money.  Other potential pressures (which are significantly less likely to occur) include revenge (the fraudster feels wronged by the business, its owners or management) and thrill (the fraudster has no need for money but wants the thrill of committing and getting away with the fraud).

Examples of the need for money include:

• The potential fraudster’s spouse becomes unemployed or unable to work, and, as a result, the family’s household income has dropped significantly;
• The potential fraudster has previously lost a higher paying job, and the current job pays significantly less;
• A member of the potential fraudster’s family has become ill or was injured, and the family is unable to pay the resulting medical bills;
• The potential fraudster has a drug or gambling problem, and needs additional money to support the problem;
• The potential fraudster (and/or family) has a lifestyle that requires more money than is currently being earned;
• The potential fraudster is going through a divorce or other family problems that require more money than is currently being earned.

Although the specific circumstances experienced by the potential fraudster are generally beyond the control of a business’s owners and/or management, the owners and managers should be on the lookout for these types of problems.  It is often as simple as getting to know better the employees who could have the opportunity to commit fraud.

For example:

• Has the owner or manager noticed whether an employee is driving a more expensive car or wearing more expensive jewelry and/or clothing than would be expected?
• Has the owner or manager heard (or has it been reported to the owner or manager by another employee) an employee discussing expensive vacations, the purchase of an expensive home or vacation home, or the purchase of an expensive boat that would appear to be more than the employee would be capable of handling?
• Has the owner or manager heard (or has it been reported to the owner or manager by another employee) the employee discussing family problems, a family member’s illness or injury or a family member’s loss of employment?
• Has the owner or manager heard (or has it been reported to the owner or manager by another employee) the employee discussing gambling winnings or losses?
• Has the owner or manager noticed (or has it been reported to the owner or manager by another employee) an employee exhibiting signs of a drug problem?
• Has the owner or manager heard (or has it been reported to the owner or manager by another employee) the employee complaining about being underpaid or passed up for a deserved raise, bonus, or promotion?
• If the answer to any of these questions is “yes”, the next step would be to consult with the company’s attorney before taking any action (including confronting the employee or questioning other employees).

By being proactive with getting to know one’s employees better, the owner or manager can help identify when an employee is facing a pressure which could potentially turn the employee into a fraudster.

If you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.