When trust goes out the window

As a manager or owner of a small to medium-sized business, you tend to place a great deal of trust in your staff. It is almost a given that staff who are loyal for a number of years will continue to complete their roles in a professional and meaningful way. The old saying “I’d trust them with my life” springs to mind. (Interestingly, for most companies their business is their life!)
So having given your staff a considerable amount of trust with company information, company accounts, business credit cards, petty cash and payroll, it’ll be quite a shock when you uncover fraudulent behaviour contributing to the organisation’s financial hardship or, depending on the enormity of the crime, liquidation.  

Generally if the employee is taking money from the company it will start off in small amounts and then increase as transactions go undetected.
There are three main reasons for fraud:
• Pressure or incentive to misappropriate cash or other company assets.
• Opportunity – circumstances that allow the person to commit the fraud.
• Rationalisation – where an employee can commit fraud and justify their actions. In one case we dealt with recently the employee felt there was a very real entitlement to their fraudulent actions.

As stated on the website www.verify.co.nz, in the majority of cases fraud and theft are committed by long standing and trusted employees who are subject to little supervision and poor internal controls – the kind of employees that managers think are beyond reproach.  
The reality is that the longer an employee is with a company the more complacent they become and the more confident they are in concealing their actions. In the majority of cases management are too busy to check what their employees are doing and it’s only when a discrepancy occurs that they are alerted to a problem.  
Once an offence has been identified management are faced with the overwhelming and stressful task of how to deal with the employee in a fair and reasonable manner. They not only have to consider the legal ramifications but also the possible bad publicity and loss of business that could eventuate from such a revelation. In cases like this it is important to seek the advice of a professional HR specialist and, depending on the circumstances, expert legal advice.

The recession has seen a surge in the number of fraud and theft cases and this is something that all businesses should be aware of. The most common types of fraud are theft of cash, equipment or falsified expense claims and cyber-crime. The biggest issue with fraud is that it has a level of intent where individuals that commit fraud intended to deceive their employer. The world has changed to one where people appear to be more concerned with what they can legally get away with rather than what is morally acceptable. And to a degree viral media is making it easier. Staff have easy access to shopping sites like 1-Day and Grabone and are able to access internal accounting systems and information that would otherwise not be available.

Warning signs and prevention
So what are some of the warning signs to consider? Try looking for the following:
• Staff that have personal debt, financial pressure or gambling issues.
• Staff that don’t take leave.
• Increased or unusual spending habits.
• Change in work hours – for example, they’re there when no one else is in the office.
• Missing office items.

How can you prevent fraud in your business? Here’s a seven-point check-list:
• Ensure you complete pre-employment checks. These include drug testing, criminal record and verbal references.
• Effectively communicate your company policies on fraud.
• Ensure all staff are cross-trained to provide cover for when people are on leave or away sick.
• Make sure all financial accounting functions are audited on a regular basis.
• Ensure all large amounts are signed off by directors.
• Require receipts for all purchases and, if they cannot do so, then employees should reimburse the company.
• Minimise allocation of business credit cards.

Another important consideration is an up-to-date employment agreement and company policies on how financial transactions are initiated, authorised, recorded and reviewed – plus policies on expenses, fraud, ethics/business practices and whistle-blowing. Get these signed by all employees.  

A case my company worked on recently highlighted the importance of an up-to-date employment agreement that covers ‘serious misconduct and suspension’. In this case the company had a suspension clause which allowed us to consider placing the employee on interim suspension pending an independent audit.  
These cases are never easy – they take an emotional and financial toll on management and the company. Management continually question themselves – could they have done things differently? Was there something they could have done to prevent the current issue, and how is this affecting the rest of their staff?
In our role as HR professionals we can only assist in offering support and the appropriate advice to clients. We need to ensure that employers follow the appropriate legal process when dealing with these issues and that they are seen, not only by the affected employee but also by other staff, to be taking a fair and reasonable approach.

Unfortunately, in the majority of cases the money is not recovered. However, it is important that when these issues arise we determine what measures can be put in place to prevent it from ever happening again.