Scams hide behind smiling faces. These are the words of Phil Mulkins, Tulsa World newspaper Action Line writer, in response to a question about how one might keep oneself from being stung by fraud.
“People who think they can spot investment scams can’t because they’re suckers for smiling faces,” says the Council of Better Business Bureaus website (according to Mr. Mulkins). “They look professional and appear successful,” it continues.
To be sure, fraud is prevalent. According to the Association of Certified Fraud Examiners (ACFE), U.S. organizations lose 5% of their annual revenues to fraud. Applied to the United States Gross Domestic Product, this 5% figure would translate to approximately $700 billion in fraud losses. Small businesses suffer disproportionate fraud losses. The median loss suffered by organizations with fewer than 100 employees was almost $200,000 per scheme, and most involve the accounting department or upper management.
Research also shows that when fraud is perpetrated by employee on employer, it’s typically carried out by the employee who is most trusted. The golden boy. Your closest confidante.
From what I’ve read and what I’ve painfully experienced, fraud – when it occurs in a single event – is made possible, in part, with pressure, stress or emotion. A skilled fraudster finds a way to bring these elements to bear on the victim, usually the person who must provide approval, access or authorization. Or the fraudster waits patiently and strikes when outside forces rise up and conveniently apply pressure, stress or emotion.
In the case of investment scams, a la Bernie Madoff (United States) or Pacific Continental Securities (United Kingdom), it might be a hot stock tip that must be seized on right away. It’s “come on, you want to get off the sidelines and make some big money, right? Here’s your chance. Let’s take down $50,000 and make a quick $100K.”
In the case of fraud in the workplace, it might be that you are under considerable time pressure and stress from unrelated matters, and the perpetrator presents you with the resolution to the problems that you have been having in your relationship with him/her. “I really want to get this resolved now. Do me a favor and just sign this. It’s not perfect and I know it’s deficient in these areas, but trust me. We’ll work the rest out later.”
In short, watch out for:
- Manipulation.
- “I’m insulted.”
- High emotion.
- Territorialism.
- “Do we really need these formalities?”
- “Don’t you trust me?”
- “Just let me handle it!”
- Unreasonable or irrational claims of “it can’t be done that way.”
Watch out when you feel yourself really needing, or wanting, to accommodate someone. Watch out when you feel yourself really wanting to make another person feel that you trust him/her or feel that you approve of his/her efforts. Finally, watch out when you find yourself listening to the assurances of others rather than the voice inside your own head that’s saying “this smells funny!”
Trust your gut instinct. If you feel pressure or uncertainty, back away!
This article originally appeared in The Business Owner Journal, the periodical of choice for owners of small and midsize private businesses. All rights reserved, D.L. Perkins LLC. © 2012.
This publication is intended to provide general information on the subject matters covered. It is sold and distributed with the understanding that neither the publisher nor any distributor or advertiser is engaged in providing legal, tax, insurance, investment or other professional advice. The advice of a qualified professional should be sought before any reader applies a concept presented herein to his or her particular situation or business.
D.L. Perkins, LLC is solely responsible for this content.
