For instance, money orders and expense claims can be altered or padded, petty cash can simply disappear, office supplies and various company products drift homeward and sick leave benefits are abused. Sales employees have been known to sell a product and keep the cash, sell products to clients not on the company sales records or direct payment to their own accounts.
Accountants who are dipping their fingers into the till, so to speak, have been known to divert or misappropriate money from office operations into their own bank account or issue cheques to fictitious cost centres or even to a ghost employee, while the money is actually directed into their own bank account. Others have been caught using company funds to pay for personal items such as a cellphone.
According to a recent study commissioned by the Association of Certified Fraud Examiners, approximately 39 per cent of fraud occurs in privately owned companies, while the public sector experiences 26 per cent of fraud. Smaller organizations with fewer than 100 employees accounted for almost 43 per cent of those experiencing fraud losses of $150,000. This translates into a five-per-cent loss for every $100 of sales.
According to the study, most fraud occurs as a result of three types of theft. Misappropriation or misuse of assets includes such schemes as skimming sales, payroll fraud, padding expenses or fraudulent billing. Pure corruption leads to bribes, illegal gratuities, conflict of interest or engaging in self-dealing transactions. In the third type, people deliberately falsify financial statements, record fictitious sales or hide liabilities and expenses.
There are a number of interesting details about the perpetrators. For instance, employees steal more often than managers, but the loss from managerial theft is much larger. More men than women engage in occupational fraud and these individuals are typically found in sales, accounting departments and/or in upper management. Finally, those involved in theft are typically longer term employees who know the internal systems well.
So, how is an incident of employee theft typically discovered? A 2008 Statistics Canada study, Fraud Against businesses in Canada: Results from a National Survey, indicates that most fraud comes to light through employee and/or customer tips rather than through the internal controls. Interestingly enough, many instances of fraud are never even reported to police. The incidents may be considered too minor, the loss was recovered, and/or the resources required to pursue criminal charges may outweigh the losses. Still others indicate they didn’t want to create negative publicity.
Those thefts reported to police and criminally prosecuted typically involved higher losses; however, when these steps were taken, at least 50 per cent of the perpetrators pled guilty.
It is unfortunate that employee theft takes place, but the real question is why do employees steal? According to U.S. fraud expert Terry Shulman, author of Biting the Hand that Feeds: the Employee Theft Epidemic, people who steal at work aren’t really professional thieves or wholly dishonest, they often steal as a result of some type of disgruntlement, an addiction and/or compulsion. Others justify theft because they are jealous of an owner’s lifestyle and success, feel they are a victim or are angry and feel unappreciated.
This perception of people who steal was echoed by Det. Sgt. Sandra Martin, an officer in commercial crime with our local police force, who says that many people who steal feel a sense of entitlement. For instance, one individual her office investigated had been denied a raise and started diverting company cash to her own bank account as a form of compensation. As well, Martin suggests that most people who engage in theft believe they won’t get caught if they steal money in small increments. Then, when an arrest does occur, they are shocked at how much money they have stolen.
There are indeed employees who simply lack any sense of ethics and will steal from their employer without feelings of guilt or concern. These employees don’t even think about having to justify their behaviour, they just steal. Unfortunately, as well, there are a growing number of employees who steal to feed an addiction such as alcohol or gambling and these are difficult situations to deal with.
What can be done about employee theft? While the first answer is often guidance toward improving internal controls, keep in mind that studies are showing that most fraud comes to light through employee and/or customer tips. This suggests to me that the best means of fraud prevention is to create a positive organizational culture where there are strong and trusting employee/employer relationships.
Source: Det. Sgt. Sandra Martin, City of Winnipeg Police Service; Fraud Against businesses in Canada: Results from a National survey, Andrea TaylorButts and Samuel Perreault, Statistics Canada, 2007/2008; Detecting Occupational Fraud in Canada: A Study of its Victims and Perpetrators, Association of Certified Fraud Examiners and Dr. Peltier-Rivest of Concordia University, Montreal