Theft And Fraud In Business: Who Is Stealing From You Today?

David Grieve

theft and fraud in business

Do you trust your people? You do? That's excellent! However, theft and fraud could be hurting your business. Could someone within your business be stealing from you today? If you are depending upon trust and trust alone, you are setting up yourself and your business for trouble. Fraud and theft may damage, even destroy your business. You are putting temptation in the way of staff who may have pressures and stresses – such as a gambling habit, or dependent relatives. So recognise the risks and learn how to prevent this calamity.

Theft And Fraud, Are Serious Business Risks

I take full responsibility for what happened at Enron. But saying that, I know in my mind that I did nothing criminal”
Kenneth Lay – disgraced criminal former CEO of Enron

Every day, it seems, stories appear about business fraud, from Chief Executives defrauding the company to cover gambling debts, to public servants giving contracts to family friends and associates, and to senior managers being appointed on false resumes. However, fraud and theft in organisations are more widespread than the media portrays. They are often hidden, as it is embarrassing to the organisation and its management. Most theft and fraud occurs within an organisation. In Australia, to take just one instance, theft in retail by employees is far higher than theft from shoplifting.

3 Theft And Fraud Examples

Every organisation needs to be vigilant against theft and fraud and to have appropriate systems in place to prevent it. I once worked for a company where rumours said several of the senior managers were perpetuating fraud. The clue was that they were living beyond their means. An alert CFO decided to engage forensic accountants. The subsequent investigation found fraud extended back over a decade and involved millions of dollars. The culprits were sacked and it was never reported to shareholders.At a less systematic level, two examples spring to mind from my personal experience with clients:

  • Personal items from motor vehicles were being stolen in transit. When catching the employees, the police found an ‘Aladdin’s Cave’ of stolen items.
  • In another example, a random check on a supplier found that two managers owned the business, directing non-existent services and collecting the money.

The Fraud Triangle

For fraud or theft to occur there needs to be three conditions - the Fraud Triangle. They are:

  1. MOTIVATION – It often relates to personal financial situation and living beyond their means. For example, gambling debts. A ‘trusted’ employee with gambling debts defrauded his employer, one of our customers at the time, of over $1m.
  2. OPPORTUNITY– This means access to cash or goods and understanding of the company’s systems. For example, truck drivers and dispatch staff in a warehouse colluding to steal stock
  3. RATIONALISATION – where employees often feel justified in their actions. For example, an employee who feels aggrieved by their salary or envious of the business or owner making a profit.

Most fraud or theft is a result of a lack of segregation of duties, inadequate check and balance systems and inadequate supervision.So, assuming you want to inoculate your business against this threat, where do you start?

3 Steps To Protect Your Business From Theft And Fraud

Like most things in an organisation, preventing theft and fraud in business starts at the top.

The first step is setting and maintaining the right culture

  • Set the right ethical tone from the top of the organisation. If a business owner routinely lie about things and everyone knows it, how likely is it that the lies will be restricted to one area? The stink gets everywhere!
  • Communicate zero tolerance for unethical behaviour. Always go hard on offenders and make sure everyone knows about it.
  • Walk the talk and set the right example. If a business owner cheats, for example by refusing to pay a bonus because he just doesn’t like it, he’s setting the scene for everyone to conclude that in this place, it’s dog eat dog.

As a business owner or manager, YOU own the business; YOU own the risk; so YOU must be the one identifying and managing it.

The second step is to ensure internal accounting controls are in place.

  • Identify the areas of the business most at risk of fraud and focus your attention on improving controls in those areas; look especially into the areas relating to how money is moved around the business. For example, when paying suppliers and wages, separate out who can raise an invoice and who can pay it.
  • Create a system where a second person is responsible for authorising payments that have been approved before the money leaves the organisation’s bank account. If your business is overly reliant on one person, particularly in the finance area, who knows everything and guards it zealously, you’re asking for trouble.

The final step is to have a system that uncovers fraud and theft.

The system can be a whistle blower policy that protects the whistle blower. For example, it may be a phone number an employee can call such as the Chief Financial Officer's. And most fraud is uncovered by employees regularly and systematically analyse the data in high risk areas such as payroll and procurement and investigate transactions that do not look right.As well as being a management distraction when discovered, serious fraud and theft can destroy a company and jobs (see http://www.dolmanbateman.com.au/604/internet-banking-fraud-clive-peters-case/). Just this year, the NAB bank has been involved with the Chief of Staff to the Managing Director having been charged with fraud.Unfortunately, in over 30 years of life in business I have witnessed too many acts of theft and fraud. In most cases, they continued until discovered and were the result of poor systems and supervisory management. Generally, theft and fraud starts small and then, as the perpetrators become more bold and greedy, they become careless. Often it’s a small indiscretion that tips a manager off, and often it is just the ‘tip of the iceberg’.

So What Next For Your Organisation?

Ask yourself,

  • Are you vigilant about theft and fraud?
  • Do you have the necessary systems in place that discourage it?
  • More importantly, do you set the moral tone and walk the talk? Do you set the standard that theft and fraud at any level is unacceptable and will be dealt with accordingly?

Remember, a fish rots from the head.To discuss this sensitive subject confidentially, get in touch with David on 0488 480402 or CONNECT HERE.

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