How does one become an accidental fraudster?

July 19, 2018 Based on a story from the July 17, 2019 ACFE Newsletter.

At the closing session of the 2018 29th annual ACFE conference, a convicted felon, who spent 22 months in jail, explained how his accidental fraudster persona, actually happened. Ryan Homa discusses why, as chief accountant for a Midwest manufacturer, he had intimate familiarity with his firm’s accounting system. Specifically, Ryan discovered a glitch in his company’s check writing application.

The accounting software allowed for the amount to be manipulated, after the check amount had been entered in and the amount stored internally.  All one needed to do was answer “no” to the question whether the check printed correctly. Then, before the check actually printed externally, a new amount could be placed on the face of the printed check. Being a good employee, Homa went to the IT department and reported the glitch. They told him the fix would cost $3,000 and was not worth the effort.

Over the next three years Homa proceeded to write checks to himself totaling $1.3 million. Perhaps the IT department had undervalued the worth of the glitch fix? But he did not start stealing immediately. Only after several  months passed.  He considered  the pressure caused by needing to meet a mortgage payment.  Even though the unpaid mortgage loomed large because of his poor cash planning. So Homa finally started his misappropriation. Of course, at first, he intended to repay the stolen money, but the ease of stealing far outweighed his guilt,  as it is for almost all accidental fraudsters. 

Donald Cressey’s Fraud Triangle explains this fraudulent behavior well. On one side of the triangle we have opportunity (the glitchy software). On another side we have financial pressure (insufficient cash on hand for a mortgage payment). On the third side of the triangle, we have rationalization (“I will just borrow the money now and then quickly repay it”). Because each of us have an imperfect human nature, we are easily capable of rationalization. Plus almost all of us feel we are under financial pressure from time to time. This reality means that the only real way to significantly reduce the common nature of fraud is to significantly decrease the opportunity in our own firm.

Is your firm actively reducing fraud and embezzlement opportunity?

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