Daily Archives: June 17, 2009

Social Networks ARE a Disruptive Scourge

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… and despite what Phil Fersht says, we should not embrace them. I could write a five page essay on why we should outlaw them, but since they’ve given all of you ADD (Attention Deficit Disorder, if you’ve gotten this far), I’ll get to the point.

If you and your employees are checking your tweets every five minutes, how much work are you getting done? The answer: very little … at a time when your smart competitors who have banned MySpace, FaceBook, and, most especially, Twitter, from the workplace are running circles around you. There’s a place and a time for Web 2.0, and where most of today’s instantiations are concerned, the office is not one of them. It’s one thing to incorporate the useful components of the technology to allow your global workforce to come together, collaborate, and share ideas like RollStream did (which I do recommend) … but it’s another to allow your employees to follow sockington the cat on Twitter on work time. Think about it.

The Troubled Triangle — How an Economic Recession Can Increase Fraud

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Editor’s Note: This post is from regular contributor Norman Katz, Sourcing Innovation’s resident expert on supply chain fraud and supply chain risk. Catch up on his new column in the archive.

In the 1950′s, Donald Cressey, a sociologist and criminologist, created the theory of the Fraud Triangle. In brief, Cressey stated that there are three components that must all come together for the commission of a fraud to occur. (This is akin to a “three-legged stool” theory.)

First, there must be pressure. A person can feel pressure from a variety of internal and external sources, such as a desire to excel, jealousy, family needs, drug or gambling addictions, etc.

Second, there must be opportunity. If a person senses that he/she can get away with something, or is otherwise enabled to do something, opportunity is present.

Third, there must be rationalization. A person will think through why an act of fraud should or should not be performed and “talk themselves into” the belief that the fraud should be perpetrated, often using skewed logic which seems justifiable to the person.

Now, let’s relate Cressey’s Fraud Triangle to the troubled economic times we are in. Organizations are slashing payrolls and laying off personnel by the hundreds and thousands. While this may satisfy financial analysts and Wall Street, are these moves being thought out strategically in terms of security and good governance integrity? Let’s explore this.

For the remaining employees, I’d imagine that these folks are under a lot of pressure, having to pick up extra work loads that their now laid-off compatriots once did. With work loads increased, bonuses cut, existing payrolls held or reduced, and the worry of whether they will be in the next round of cuts should their organization survive at all, there’s a lot of pressure on the shoulders of these individuals. Combine this with outside-the-job pressures such as family needs, an unemployed spouse, kids in college, medical care, etc. and you’ve got quite the boiling tea kettle ready to blow.

With their job responsibilities increased to cover for dismissed colleagues, an employee will likely need more business software application rights and roles to accomplish the new expanded set of tasks. By increasing application rights and roles, a single employee could in fact be given enough authority to perpetrate fraud. (Remember our friend the accounting clerk who I mentioned in a previous post?) Job cuts often result in decreased monitoring and controls, overall leaving an employee with ample opportunity to commit fraud.

Now, with pressure building and opportunity soaring, what’s left to reign in the otherwise honest employee from perpetrating fraud? It is our morals, ethics, values, and principles. And when these fail – when the forces of pressure and opportunity become so great that they eclipse this final protective barrier, there is a good likelihood that fraud will be perpetrated.

For public companies that must comply with Sarbanes-Oxley laws and ensure good governance to protect their financial statements from materially significant impacts, are the corporate cuts leaving them exposed to even more risk from fraud than before? (Private companies and government agencies face the same risk exposure too.)

Have you had to cover for colleagues that were let go? Are there more gaps and less controls now than before? Are you one of the many who was made redundant and know that your absence has created or widened a gap where fraud can now foster and grow? Let’s hear from you.

Norman Katz, Katzscan