There are three components of the fraud triangle: incentive, rationalization and opportunity. With few exceptions, people engage in fraud because they have a reason that’s related to either money or ego. And because most employees realize fraud is wrong, they convince themselves what they are doing is really not fraud–they rationalize their actions because they are either “deserving” or they are only “borrowing.” Incentives and rationalizations are outside your sphere of influence and, as such, cannot really be changed.

Your organization, however, can affect opportunity by instituting internal controls to help protect your assets and prevent loss exposure. Internal controls can range from the simple, such as locks on the doors and taking daily cash deposits to the bank, to the sublime with 24/7 video surveillance and retina scanning devices to access the inventory warehouse. Most businesses opt for something in-between because of personnel and monetary constraints.

Three of the best methods to reduce the potential for fraud are nearly free, or free.

The first simple and effective internal control is separation of duties: simply don’t let one individual have total control of all activities in a specific organizational function. Someone who has both an incentive to commit fraud and the ability to rationalize the action probably doesn’t want others to know what they’re doing. So, putting someone from another department in the job process, or reassigning duties within your organization, typically limits the opportunity to commit the fraud.

The second internal control is even easier than the first, since the only thing you need to do is to pay is attention by listening and observing. Simply listen to what people say, and look at what they do. New homes, new cars, new wardrobes, or exotic vacations with no change in an employee title, status or pay might be reasons to attempt to gather additional information. Other things to you need to watch for?  Behaviors like consistently staying late at work, not taking vacations, lamenting financial difficulties, and avoiding company colleagues or get-togethers are all signals of rationalization.

The last easy and inexpensive internal control is making certain your staff understands the importance of whistle-blowing and is encouraged to speak up if they believe anything fiscally inappropriate is occurring in the organization. The Association of Certified Fraud Examiners (ACFE) has consistently shown that most frauds are found not by auditors (internal or external) but from tips by employees, customers and vendors. If a whistle-blower hotline is too expensive for your operation, you should make sure all your employees understand that “telling” is good and a variety of individuals (including internal auditors, if they exist) should be designated as those with whom issues can be shared confidentially.

Fraud surrounds us and, according to ACFE, costs the average U.S. business about seven percent of its annual revenue each year.  When your business loses money to fraud, everyone loses. The prices of goods increase and the potential for job losses from business closures also rise. There are many industries where that seven percent is the difference between profit and loss for the year.

While fraud will never be eliminated in businesses, it can often be reduced through an “open” perspective. Open your activity loops: separate duties to prevent total control by a single individual. Open your eyes and ears: listen to what people say and watch what they do to garner clues about changed or changing circumstances. Open your mouth: vocalize the benefits of providing, and reward those who provide information about wrongdoing. Being more open will, in fact, help close the door on organizational fraud.

Cecily Raiborn, PhD, CPA, CMA is the Endowed Chair in Accounting for the McCoy School of Business at Texas State University-San Marcos

TEXAS CEO: Earlier this year the sell-side investor community named you as the most effective and trusted CFO in the software sector, as well as being recognized by the buy-side analysts. What is it about your style and approach that has caught Wall Street’s attention?

SOLCHER: It’s about honesty, transparency, not trying to spin a message, being fact-based and thinking about the type of metrics that will help the ordinary investor understand the health of our business. The key for me has always been to use the same metrics that we use to monitor and track our business, and use those same metrics to explain our performance externally. It’s important to communicate the full message and not try to hide poor performance.

TEXAS CEO: Is there a line in your mind that separates the advocacy you need to do around numbers and the interpretation of numbers, and that on one side and selling it on the other side?

SOLCHER: I work to simplify our message to very tangible outcomes. If you just try to tell a complex story without having the elements or the building blocks underneath it, it becomes confusing and key points of your messaging may get lost.  I want our shareholders to understand all of the real drivers of performance.

TEXAS CEO: What is it about BMC that enables you to do your best work and to really be able to act the way you do, to have the values that you do?

SOLCHER: It starts at the top. Our CEO, Bob Beauchamp, together with our board of directors, really sets the tone on ethics, acting with integrity, and that we’re going to do the right thing no matter what. Operationally, my staff has been a huge contributor to the high quality of our financials and financial processes. There have been a lot of people over the years that helped me to step up and understand the bigger picture.

TEXAS CEO: Given the current economic backdrop, how have you changed your mindset or your practices or your methods?

SOLCHER: It’s important to understand that anybody can manage for the short term, and anybody can manage to the long term. It’s really finding the right balance between those two objectives which is the difficult job, but it’s critically important. Lately, I have spent more time thinking about the longer term strategies. Most of the major game changing moves that have ever happened occurred in an environment like the one we’re in.

TEXAS CEO:  Is there something you’ve learned that guides you daily in your work?

SOLCHER: Never walk out of a meeting wishing you would have said something which may have influenced a key decision.

TEXAS CEO:  Texas culture – that idea of being self-sufficient and making your own mark — obviously made an impact on you.

SOLCHER:  I think it primarily started through how my parents raised me, and I think because both of them were Texans, and that no one had ever given anything to them. They instilled in us from the first moment that you get nothing for free, and made us all work all the way through our educational years. I just never felt that you were entitled to anything other than what your own hard work produced. To me, Texas is about the chance to stand on your own two feet and being the person you ought to be.