To ensure proper level of personal security on the stage of employment, the employer has the opportunity to conduct the necessary assessment of diligence of a potential employee. Thus, people that initially have criminal intent can be weeded out. Only few start their careers with an intention to become liars and thieves. Most employees do not intend to deceive the employer, they are willing honestly and accurately to perform their duties. Even if they have the opportunity to commit fraud, they have no reason to do it.
The situation can change, though. The employee can force financial difficulties with which he is unable to cope. It may be a need to pay for child’s education, unexpected medical expenses, gambling, drug dependence, service grievances and blackmail. Any of these reasons can make a respectable employee cross the line, he may begin to think and act in accordance with his life circumstances. Employees need to be trusted, but it is extremely dangerous to trust the circumstances of their lives. Here is an appropriate proverb, which Ronald Reagan used to say, “Trust, but verify”. That is why an extremely important aspect of the security organization is the best possible control of the motives and private life of an employee. An indicator of potential threat of an employee is the so-called fraud triangle: in order for the misconduct to take place, concurrence of three circumstances is required:
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- The pressure of external circumstances (such as financial hardship).
- The opportunity to commit fraud (imperfect business processes, internal controls).
- Self-justification (law pay, why not).
According to the company Ernst & Young:
- One out of thousand employees cheats the company once a year.
- Only 4 out of 10 people are honest with others.
- An average period over which fraud is put into effect is 18 months from the beginning of the fraud to the point when it was found (Pedneault, 2009).
The opportunity is determined by the sense that fraud probably will not be disclosed. It is usually the weakness of the internal control or the ability to bypass it. Self-justification is an intellectual process by which an employee brings the act into line with his moral code. He must “convince himself” that the end justifies the means. The pressure of external circumstances can be of two kinds: direct and indirect. The direct one is when the employee steals, because he needs money (often because of addiction: drugs, alcohol, gambling). The indirect pressure of circumstances is the desire to keep the company afloat. In this case, accounts are forged wanting to obtain or renew a loan, to help buy time to solve the problem. It is very easy for the employee to justify his actions when he has the opportunity and is under the pressure of external factors. The stronger one of the factors is, the smaller the impact of the other factors needs to commit fraud. In the absence of any factor, fraud cannot be committed (the high morality of the person, the lack of pressure, the lack of possibility). With the simultaneous occurrence of all three factors, fraud is uniquely committed.
According to the Association of Certified Fraud Examiners (ACFE), 39% of perpetrators lived beyond their means, 34% had an insurmountable financial difficulties. Similar results demonstrated the research of BDO: 28% called financial difficulties and pressure to be the cause of fraud, 16% - the need to maintain a certain lifestyle and 11% - a problem with gambling (Pedneault, 2009).
Employees of the organization may have an access to a variety of critical data. A leak from any channel of information may have serious pecuniary consequences for the company.
Of course, it is not necessarily that the employees who have all three factors will become criminals, but the employer must provide a signal for a closer monitoring of these employees.