The Fireworks of Fraud

On the Fourth of July and New Year’s Eve, we buy fireworks to celebrate the holidays. It's fun for the whole family. Some enjoy throwing small snap pops to the ground, while others enjoy lighting smaller firecrackers to set off small blasts, and everyone loves watching the colors explode in the night sky. It's amazing that I am not deathly afraid of fireworks.

When I was a boy, I was severely injured by a whistler. I lit the fuse and ran away to what was presumably a safe distance, but it wasn’t far enough. The cigar shaped package of gunpowder whizzed through the air and landed on my inner thigh. I can still make out the outline of the scar from the wound that took several weeks to heal.

As I prepared for this year’s annual Fourth of July show, I realized that the magnitude of fraud is very similar to fireworks:

  • Snap! is the sound a snap pop makes when it hits the concrete. These are the fraud schemes that are detected quickly and have a very small financial impact. Companies usually have the highest level of controls focused on catching these types of fraud. It could be the risk of a cashier at your local fast food restaurant or a bank teller skimming cash from their drawer.
  • Pop! is the sound a firecracker makes when the fuse burns into the tube that holds a small amount of tightly compacted powder. Fraud schemes with this magnitude can be a little more impactful to the organization. Oftentimes, companies will have controls in place, but the fraudster circumvents the internal controls to commit fraud. As an example, an employee could steal cash and cover the skimming with future receipts, usually checks, to conceal the theft. The theft amount will increase over time, making it harder and harder for the fraudster to conceal the fraud.
  • Boom! is the sound an artillery shell makes as it leaves the tube and flies into the air. This is by far the most spectacular firework in my arsenal because it starts with a boom as it exits the tube, flying high into the air, and exploding into a starburst of colors and sparks. However, if your company is hit by a fraud of this magnitude, then the future of the company may be questionable. With these fraud schemes, the fraudster(s) have the ability to override the controls or may even decide not to put them in place. Enron is a prime example of a “Boom!” that was heard around the world.

Most companies have significant controls to manage the frauds with a “Snap” magnitude but will get blindsided by the frauds that go “Pop” or “Boom” because they never see them coming. Are you prepared to address the firecrackers or artillery shells that could be hidden within your organization?

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Topics: Fraud Prevention

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