The Takeout: Trusted employees stealing from their employer is not a new phenomenon. It is a growing one. Interestingly, most corporate fraud is detected randomly; by carelessness, or a tip-off. So what does an organisation do? Systems, audits, and careful employment processes are certainly essential. However, most important, according to those close to the ‘fraud-face’ are good company ethics.
From an article by Kathy Ombler in the May 2016 Management Magazine.
Some of the cases in 2016 included an engineer and his partner stealing $2.2m from the engineer’s employer, Might River Power, unexplained transactions of some $1.84m at Auckland International Airport and a High Court action by Sky City over an employee’s alleged $2.56m fraud.
No matter the size, reputation or the systems it has in place, it seems no company or organisation is bullet proof when it comes to ‘insider attack’. According to the PWC Global Economic Crime Survey, published in Feb 2016, 40% of NZ workplaces have experienced economic crime in the past 2 years .
By far the majority of this crime, 74% is asset misappropriation. Next on the list at 29% apiece, are cybercrime and procurement fraud.
It is really a question of opportunity, says Julie Read, director of the SFO. “it is comparatively easy to commit fraud where you know the systems and see the opportunity. This is also why fraud is often carried out by long-term employees; they are trusted and given access to systems that allow fraud to be committed. Because they are trusted there may not be sufficient checks and balances to detect the fraud”.
It can get more sinister adds Michael Campbell of Advanced Investigations. “The need to fuel drug addictions is worryingly high. People in senior positions can get hooked on P, then need a lot of money to buy their drugs each week. With that you find organised crime involved, gangs and drugs, it’s all intertwined. People involved with organised crime often target a vulnerable person who has a lucrative position, or they might find out this person needs money, so they’ll encourage a friendship and prey on them”.
Can companies be doing more to thwart a fraudster on their payroll? PWC’s Lucas says,” the level of fraud which companies are able to identify by their own corporate controls is pretty poor, only about 24%. Nearly half of all fraud detection comes through tip-offs and whistle-blowers. For whistle-blowers to come forward you need to stress the ethics of the company. Your employees need to have a clear indication of what’s right and what’s wrong, and to know there is somewhere to go, in a safe environment, where they can report things. Training is also important. The vast majority of companies have good ethics and codes of conduct, but they don’t spend enough time reiterating all this. They ned to drive the ethics down through the company.
You’ve got to have corporate controls in place. Plus you’ve got to make sure people understand they are in place, so you’ve got to do your systems testing, your division of duties, and your audits. You’ve also got to be clear about what your risks are. If you’re a retailer and have a lot of high value goods that can be easily resold, you need to control how those goods come and go so they can’t get nicked. Whereas if your company is building massive plants or infrastructure, and you have a huge purchasing budget, then your focus is everything around your purchasing.
There’s no one size fits all and you’ve got to say, what controls do I need to put in place to give me reasonable confidence I’m not going to have stuff nicked”.
And if all systems fail, 18% of corporate fraud is detected simply by accident, a slip-up, or a colleague tripping over it according to the PWC survey.