Spotting and dealing with fraud in the workplace. By Sandra Lawrence
A secretary at a large Australian financial institution was issued with a corporate credit card. The card was for buying office supplies and paying miscellaneous staff expenses. An internal policy stated that the card was not to be used for personal expenses.
The credit card statement came in each month. The manager was supposed to check this statement against the relevant receipts, then sign the statement to authorise payment.
For more than 12 months the manager failed to check the statements relating to his secretary’s corporate credit card. In that time, the secretary ran up $20,000 in personal expenses – taxis to and from work, interstate travel, restaurant bills, lingerie, gifts and jewellery. All of this was unauthorised and her manager never noticed. The secretary forged his signature on the credit card statement every month.
Eventually, an accounts clerk noticed that the manager’s signature looked unusual. The secretary was interviewed by an internal investigator and was subsequently charged by police.
A newspaper ran the story, with a large photograph of the secretary walking out of the court.
But, what about the manager? If he had checked the statement even once, he would have noticed the exorbitant amount of personal expenditure.
Why do employees commit fraud?
There are three primary reasons for employees committing fraud: greed, motivation, and opportunity. It is difficult for a manager to prevent someone from committing fraud for greed. However, there are many ways of reducing the motivation and opportunity. For instance, an employee who has been overlooked for promotion, did not receive a pay rise or has an unreasonable workload may be motivated to steal from the company. If the opportunity presents itself, it may be hard to resist.
Many frauds start out small: a worker will “borrow” a small amount and pay it back. No one will be the wiser. But once the person sees how easy it is, greed takes over and the fraud escalates.
Managers can prevent fraud first of all by setting the right example. If staff see their manager behaving in a dishonest manner, they may feel justified in behaving the same way. Second, encourage communication. Employees should feel comfortable speaking to their manager about their concerns. A disgruntled employee can be a dangerous person.
Conduct regular performance reviews and always deliver on promises. Third, treat fraud seriously. All instances of suspected fraud must be investigated and referred to the police if a criminal breach has occurred.
Fourth, remove the opportunities. Conduct a fraud risk assessment of the workplace. Find the holes and fix them. Where practicable, communicate instances of fraud to staff. This prevents rumors and acts as a deterrent.
In another case, an employee used $500,000 from a client’s investment fund. Before being discovered, she displayed many of the warnings that are associated with staff fraud. It was obvious that she was living well beyond her means. She was possessive of her office phone and switched it through to her mobile whenever she was away from her desk. She asked co-workers to process transactions without the usual authorisations, and she exhibited a sudden change in her lifestyle.
One of the best ways of ascertaining whether a fraud is taking place is to insist that staff duties are rotated or shared. Many frauds are discovered when employees go on leave or resign, because they are no longer able to cover up.
Here are some signs that may indicate fraud or be a precursor to it:
- Possessiveness towards clients or the office phone.
- Reconciliation discrepancies.
- Sudden resignation without reason.
- An addiction, such as gambling.
- Living beyond usual means.
- Rumors and tip-offs.
- Never taking annual leave.
- Unusual transactions with related parties.
- Putting pressure on other staff to perform a function without the usual authorisations.
- Failure to provide documentation to support claims.
Dealing with suspected fraud
The do’s and don’ts of dealing with suspected fraud:
- Do not dismiss an employee for fraud without adequate proof or without offering a chance to explain.
- Do not handle evidentiary documents in a manner that may cause them to be inadmissible in court.
- Do not tamper with a computer if you believe it contains evidence of a crime. Treat it like a crime scene and call in the experts.
- Do not conduct the investigation yourself.
- Do seek legal advice when thinking about dismissing an employee.
- Do not give a suspect the opportunity to destroy or damage evidence.
- Do take action.
How not to
How not to honor your debts
Worst executive payout goes to HIH, the insurance giant that collapsed with a $5.3 billion deficiency. It turns out that 550 former HIH employees, who are members of the HIH Insurance Group Staff Superannuation Fund, qualified for a $36 million payout after the NSW Supreme court ruled that the assets belong to HIH’s former employees, not its creditors. Those holding out their hands for the surplus include former high-flying HIH executives such as chief executive Ray Williams, his deputy, George Sturesteps, former finance manager Ross Eade, administration manager Wal Kane and executive director Terry Cassidy.
How not to make business seem like child’s play
Most-left-of-field management training prize goes to North American firm Case Solutions which, according to a report in a Toronto newspaper, the National Post, conducts $US12,000 ($A20,100) executive seminars at which clients use customised Lego blocks to build designs as metaphors for their companies’ opportunities and problems. For example, one executive made an octopus with a hard hat and holding a skeleton to show himself as a multi-tasker. The hard hat supposedly represented problems from the past, said the Post. And the skeleton? That symbolised his tendency to protect himself from sales quotas.
How not to invest clients’ money
Worst customer service prize goes to two stockbrokers from the Aberdeen-based firm Barum House Securities, including its chief executive, who used clients’ money to sort out their own financial difficulties. According to the UK’s Financial Services Authority, the firm’s boss, Barry Scott, used £65,000 ($A172,620) of one client’s money to reduce his personal overdraft. He then pretended to repay it by selling the client’s other investments. Mr Scott was not just trying to fix his own finances either. He was also found to have used £40,000 of investors’ cash to cover up the company’s difficulties.
Investigators also found that one of his employees, Lara Gaur, had invested the funds of a number of clients without their consent. Authorities said she had used £30,000 of their money to buy shares in Barum House Securities for herself and her husband. Gaur tried to cover her tracks by asking clients to provide character references and backdated consent. Barum House Securities was put into compulsory liquidation in March 2001, and the company was finally shut down in November of the same year. No criminal charges have been brought against Scott or Gaur but the pair have been banned from working in the industry.
How not to sell a return ticket
Runner-up for bad customer service goes to Air India. One of its passengers, a female villager, fell asleep and unexpectedly wound up back home when no one woke her up at her destination. According to a news agency report, the 32-year-old passenger was flying to join her engineer husband who works in Doha in the Gulf State of Qatar. The United News of India reports that she dozed off after the flight took off from the southern Indian city of Cochin and woke up only after the plane began its return flight, taking the first time passenger back to where she had started. Air India, embarrassed that its staff had failed to ensure that all passengers on the flight disembarked, gave her a free ticket to Doha, the news agency said.
How not to ape the animals
Prize for the weirdest new business goes to two British zoologists and a psychologist who have started a business consulting firm to teach executives to handle risk based on lessons from animal behavior. Founders Alex Kacelnik and Sir John Krebs (University of Oxford) said their work with starlings and crows showed that animals, including humans, approached risk in similar ways. In other words, a resources company drilling for oil is just like a crow foraging for food.