36 ◾ A Comprehensive Look at Fraud Identiﬁcation and Prevention
midsize- to- smaller operations, they operate with smaller budgets, and many times
employees wear multiple hats. is practice can lead to overlooking certain security
and loss prevention procedures, with a lower level of resistance presented. With the
smaller mom- and- pop operations, budgets are even tighter, and the idea of “it won’t
happen to me” is commonplace.
e importance of operating any size business or corporation is not in the
amount of time and money spent working to prevent and deter fraud; it resides in
the knowledge available on where the business is vulnerable to fraud, both internal
and external fraud.
e knowledge required to place the business oﬀ the path of least resistance
resides in the education level of the owners or employees given the task of pro-
tecting the company assets. e education level is not based on years of college
experience or degrees held, but how well the business owners and loss prevention
employees are educated on fraud identiﬁcation and prevention.
3.2 Analyzing Fraud Potential
Chapter 2 on employee theft and fraud discussed the theory of 20-60-20 as it
pertains to categories of individuals in society. Twenty percent of the population
is inherently honest and will not be swayed into dishonesty, no matter the tempta-
tion level. Another 20% of the population is inherently dishonest, and it is hoped
these individuals are weeded out during the applicant screening process as part
of a detailed preemployment background veriﬁcation. e remaining 60% of the
population does not enter the workforce to commit fraud or steal. e opportunity
level created by company operating procedures could cause an otherwise- honest
individual to commit fraud or steal (temptation).
A proper understanding of organizational fraud potential resides in the cat-
egory of opportunity.
To develop a complete understanding of opportunity, com-
pany policies and procedures have to be addressed to cover the two- sided aspect of
1. Do the daily company operating procedures and actual day- to- day business
activities create an opportunity for fraud/ theft?
2. Do the daily company operating procedures and actual day- to- day activities
allow gaps where an employee can create the opportunity for fraud/ theft?
When looking to conduct a fraud/ theft prevention analysis of a business opera-
tion, it is necessary to identify areas of opportunity:
◾ Organizationally generated opportunities identiﬁed through weaknesses in
◾ Employee- generated opportunities identiﬁed through weaknesses in daily