Don't let 'em steal you blind Featured

10:04am EDT July 22, 2002
A trusted employee is caught skimming profits, stealing thousands. Another is found to be running a shell company, siphoning money from his employer's business.

Sound familiar?

Every day we read stories about employees and executives stealing from their companies or cheating their clients.

In 1996, the Association of Certified Fraud Examiners issued the Wells Report, finding that the median cost of fraud and abuse is 6 percent of annual revenues, with the average organization losing more than $9 a day per employee. This translates into more than $400 billion a year for U.S. companies. Companies with fewer than 100 employees are the most vulnerable to fraud and abuse.

Several factors can contribute to employee theft. It may be as simple as poor corporate oversight and lax controls, or rumors of takeovers or downsizing, coupled with an employee's personal financial problems.

Who does the stealing? The typical criminal in fraud is an older, college-educated white male. Employees account for the majority of thefts, but losses from their activities don't come close to the dollar amounts stolen by business owners. Losses caused by those age 60 and older were 28 times greater than those age 25 and younger. Men committed nearly three-fourths of the offenses, and losses caused by those with postgraduate degrees were more than five times greater than those caused by high school graduates.

What can employers do to protect themselves? Here are some suggestions:

  • Hire hard. The objective of the hiring process is not only intended to attract the best and brightest, but to keep people with questionable backgrounds out of your company. Request and verify all references thoroughly and make sure there are no unexplained employment history gaps. Any money spent at the beginning of the process is going to save you money in the long run.

  • Have good policies in place. Have a written code of ethics and use it. Don't put it on a shelf. Make sure it is clearly communicated to all new employees and reviewed yearly with existing personnel.

  • Establish good internal controls. Make sure the same individual isn't in charge of payables and receivables. Examine bank statements promptly. While any tangible asset can be taken, cash and checking accounts are the most common targets.

  • Enforce mandatory vacation policies and, when possible, rotate financial duties to ensure that a fresh pair of eyes reviews your processes.

  • Conduct surprise audits.

  • Have a reporting system for suspected fraud or abuse.

  • Reward ethical behavior with the same zeal normally reserved for sales goals. Show employees appreciation for their honesty. It is the basis for all business relationships, internal and external.

  • Lead by example. Set the tone at the top. Employees are aware of what management does and will emulate what they see-good or bad.

  • Lead not into temptation. If you don't want me to steal your purse, don't leave it unattended on your desk. The same applies to your stocks, securities and proprietary information. Most major thefts are not conducted by "superhackers" over your computer lines. It's often the guy who works for your contract cleaning company who can be your biggest threat. He can go through your business, picking up information your employees left lying in plain view. Take a walk through your business one evening. It can be enlightening.

  • Hire a professional. If you see red flags, have a professional look at the discrepancies. Often when an investigator is finally contacted, the thief has had an opportunity to destroy evidence, obscure the tracks used or hide the proceeds of the theft. That makes our job more difficult and translates to a higher cost to the client, adding insult to injury.

By following these tried and true methods, you may prevent your company from becoming another victim of fraud.

Fritz Weidner is president and CEO of Weidner & Associates Inc., a Columbus-based investigative and security consulting firm.