Preventing Business Fraud – “Sorry, I’m not Interested”

After speaking to a group of business owners on preventing fraud in the workplace, the speaker is approached by an attendee. It was normal in almost every speaking engagement. A member of the audience would relay a story about a trusted co-worker who betrayed their organization by embezzling money. If someone didn’t approach him, that would be unusual. The speaker never gets tired of listening. Often, the stories provide data that confirm statistics gathered by anti-fraud professionals.

Something else is also normal – unfortunately, that is. If a company is approached by a professional to perform an anti-fraud service, they quickly decline. The reasons provided are legion. Let’s explore a few of them –

“We have long-term employees” [They are normally the ones who steal from you]

“Our executives are really smart” [Fraud doesn’t let IQ stop it]

“We have a CPA” [CPAs are very important but normally they don’t look for fraud]

Other reasons not mentioned include the belief that since no problems have ever occurred, then nothing ever will. A few entities carry what’s referred to as an employee dishonesty insurance product. Those products have limitations and often carry the pre-requisite of a forensic review prior to payment. Oh, and they are normally limited to $25K payouts.

The average embezzlement, also referred to as occupational fraud, extends for approximately 18 months prior to detection. Others extend further. The average loss per fraud is over $100,000 and about one in five is for $1M or more.

Internal controls to prevent employee theft are normally present in the modern day, some stronger than others. Small business owners are especially at risk but mid-size and large entities are victimized as well. Fraud evolves, controls may be circumvented, an honest workplace environment may not exist and mixed messages sent on the topic.

The speaker mentioned is a Certified Fraud Examiner (CFE), who belongs to a group of private investigators. They respond to the crisis in a business. Normally, it’s a long-time valued employee who slowly begins taking funds and the theft escalates. There is a need or outright greed involved in every matter. Organizations get blindsided. The aftermath extends beyond the financial loss.

Consider a company with approximately $2M in sales – The executive’s mind is spinning as they realize large amounts of money is missing. The responsible person works in the company and has been narrowed down to a few. Rewind, and the same organization is contacted by a third-party CFE, months earlier. An offer to look at their vulnerabilities is given but not considered. The executive thinks back to the third-party presentation and wonders, what if?

The sad part, is the story is common. It’s just not spoken of. Rarely, will an organization backtrack and contact the CFE afterwards. The embarrassment factor is too high. Egos prevent it.  Are there any organizations that see the value in an outside anti-fraud examination? The CFE says in part, “You have a better chance of spotting a penguin in the desert. For the few that do reach out, they already have a suspicion that something is not right. Still, we continue to spread the message of prevention services. It’s always easier to prevent and detect a problem than respond later.”

The same CFE was requested to give a consultation to a company who suspected an employee of theft. As the CFE gathered intelligence, he advised the company their fears were likely founded. The employee’s behavior was very problematic. The company decided not to take action. Later they actually contacted the CFE and said, “You told us last year the employee was bad news.” They went on to describe the damage done.

In our present day, not much has changed. Occupational fraud continues with no signs of slowing down. About a week prior to this writing the CFE contacted a new business owner about protecting its assets. Without hesitation the owner said, “Sorry, I’m not interested right now.” The CFE wondered if the owner had to become a victim before caring. Sadly, probably so. In the meantime, maybe the owner can see a penguin in the desert.