Print edition: 
More businesses have been and will be affected by fraud during the past and coming year due to the economic environment, according to an Association of Certified Fraud Examiners June 2009 study. Why? In a recession, businesses may be more vulnerable in all areas of the "fraud triangle": incentive, opportunity and rationalization.
Incentive
Salary and job cuts common in a declining economy may cause financial stress and the incentive to commit fraud. Business owners can use several communication tools to help prevent and mitigate fraud.
First, share information if employee assistance programs related to financial stress are available. Also, consider implementing a confidential employee communication program that allows employees to anonymously report workplace issues, including fraud.
The ACFE reports that employee tips are the most common way fraud is detected and that businesses with hotlines have less fraud and lower average losses ($100,000 average fraud loss for businesses with hotlines compared with $250,000 average loss for businesses without hotlines). By helping employees cope with financial issues and providing an outlet to communicate anonymously with management, you may reduce the likelihood of fraud.
Opportunity
As jobs are cut, opportunities to commit fraud may increase. Even sound internal controls can fail if fewer employees are available to maintain them.
Business owners should be aware of the internal control environment, segregate duties where possible and not place too much trust in any one employee.
Rationalization
The same cuts that can create opportunities for fraud might also fuel rationalizations for committing it. Fewer staff doing the same amount of work can breed resentment, leading employees to feel justified in committing fraud. Carefully monitor employees' workloads and redistribute work as needed to help guard against perceptions of inequity that can foster rationalization and fraud.
Other tips
The more effectively you address these factors, the more you reduce the likelihood of fraud. Even by eliminating only one side of the fraud triangle, you can reduce the chances of fraud. Beyond the fraud triangle, business owners can help protect themselves by using a few simple guidelines:
* Be skeptical about any excuses for late or missing financial statements. Timely review of them is vital to fraud detection and any delay is a warning signal worth investigating.
* Segregate financial duties as much as possible. Access to assets and access to records must be separated to ensure that one person can't cover up his or her own fraudulent activities by altering your financial records.
* Watch for red flags in employees' actions and lifestyle. Do certain employees never take vacation? Are they living beyond their means? When fraud is uncovered, employers often recall and recognize fraud indicators that were overlooked.
* Last, but possibly most powerful: By simply being an active owner who is present and aware of the daily operations of your business, you become a major deterrent to fraud and increase the odds that you will be able to catch fraud schemes early before much damage is done.
