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Fighting Friendly Fraud: Five Insider (Theft) Secrets
John Sileo became a nationally recognized fraud expert through first-hand experience – a trusted friend and business associate took him for hundreds of thousands of dollars and ruined his software business. "Friendly fraud is a lot like a bad relationship," says Sileo, "because it takes you by surprise, it starts off too good to be true, and you often end up in court and out of money."
In a recent online presentation, Sileo outlined five insider theft secrets and what you can do to counteract them:
1. Your denial exposes you.
"It won't happen to me...we're too small to target...I trust him – he wouldn't dare." Almost every case of fraud follows this same pattern of denial. Saying one or all these things to yourself should be your first red flag. Fortunately, acceptance of a few simple facts can neutralize your denial: "Fraud can happen to me, my business is exactly the right size, the fraudster will be someone I trust, and prevention costs much less than recovery."
2. Bad habits attract fraudulent behavior.
If you don't do background screening or check candidates' references or conduct any additional do-it-yourself research, you're a prime target for friendly fraudsters. Due diligence solves the problem quickly and easily: Conduct background checks and verify references through a professional service and use public online tools like LinkedIn and Facebook to check up on candidates you're considering.
3. Need + opportunity = corruption.
According to Sileo, 87% of fraudsters are good people who make bad choices under pressure. A drug habit. Gambling debts. Bad personal financial decisions. These are the kinds of needs and pressures that can motivate fraudsters. Once you train everyone, including yourself, to recognize those needs and understand opportunity 'hot spots' within your organization, you're that much closer to shutting down friendly fraud.
4. The lack of conspicuous controls condemns you.
If a fraudster knows you're not taking preventative steps, he'll soon be taking advantage of the situation. The answer here is deterrence through oversight. Provide convenient means to report suspicious activity (50% of all occupational fraud is detected via tips). Perform conspicuous, unexpected fraud audits. Add ethical conduct language to employment agreements. Set up fraud awareness training. And, don't just implement these controls, advertise them openly and often.
5. Emotions can quickly sabotage recovery.
If you do become a victim of friendly fraud, the worst thing you can do is react emotionally. Keep your temper in check. Refrain from making unsubstantiated accusations. (They could lead to a defamation lawsuit, even if the suspect actually committed the crime.) Limit the number of people you tell and start building your case in a methodical and detailed way.
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