Winnipeg Free Press - Section H - - CAREERS -

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

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