SHATTERED TRUST: FRAUD IN THE FAMILY

The author is defining a family business as any organization in which one or more family members established or currently operate the entity, with at least one family member at the owner level. It's hard to find reliable statistics about fraud perpetrated by people against their own family. Further, when a trusted family member is the perpetrator, other relatives often pressure the victims to keep peace in the family and resolve the matter quietly. For any entity, large or small, the most widely accepted theory researchers have developed to explain why fraud occurs is the fraud triangle. Within this triangle, three elements -- pressure, opportunity, and rationalization -- are necessary for fraud to occur. Given the elements of the fraud triangle, the best preventative approach is to increase the perception of detection, which can be achieved through proper internal controls.