Every single company that employs people is vulnerable to fraud of some kind, but the person taking home three pencils from the office, or the one who takes an unnecessary sick day every now and then, is not going to bankrupt the business.
However, the one who is stealing money could do just that.
It’s every business owner’s nightmare: a long-time trusted employee, who has access to the finances and the bookkeeping processes, is diverting funds into another account for personal use. And nobody knows it, or even suspects it, yet.
The statistics from the PricewaterhouseCoopers (PwC) Global Economic Crime Survey (2016) SA edition are frightening:
- Two in every three organisations in SA report falling victim to economic crimes of some kind;
- SA companies have experienced these types of economic crimes: asset misappropriation (77%), procurement fraud (59%), bribery and corruption (52%) and cybercrime (26%);
- One in four South African companies indicated they have lost between R1.8m and R18m because of fraud and theft;
- In 2016, 45% of fraudsters acting against companies were employees (inside jobs);
- Few senior managers steal, but when they do, the amounts are much bigger; and
- The US Chamber of Commerce estimates that given the opportunity, 75% of workers will steal from their workplace (this includes minor thefts).
The types of fraud committed by employees against companies fall into several main categories:
- Asset misappropriation (stealing money or goods from the company, or finding a way to divert funds from the company account into a personal account).
- Vendor fraud (this involves an external vendor who gives false invoices/overcharges/gives kickbacks).
- Accounting fraud (basically cooking the books, to hide the fact that money is going missing, or goods are being stolen).
- Payroll fraud (e.g. the salary of a fictitious employee is diverted to the fraudster’s account, or timesheets are inflated/overtime incorrectly charged for).
- Data theft (sharing trade secrets with the opposition, theft of customer details).
- Fraud and corruption (an employee secretly takes kickbacks or bribes to secure an advantage to a particular client).
According to the PwC survey, the profile of a typical fraudster is as follows: most often male, with at least a secondary level education, between 31 and 40 years old, with three to ten years of service. However, studies say that when confronted with the economic reality of serious family problems, women will top the men when it comes to stealing from their employers.
The solution to preventing fraud, say the experts, is in regular checking of the financial statements, invoicing and stock inventories by several people, rotating staff and staff duties, and in learning to read the signs that fraud is taking place.
Many employees, especially those in smaller companies and in senior positions, get away with stealing from their employers for years before they are caught.
But before you accuse anyone of defrauding the business, do make sure of your facts as it is a very serious allegation.
Here are some red flags of possible fraud in your company:
Living beyond their means. You know what you pay your staff: if an employee earns a modest salary, but suddenly takes expensive trips, buys a flashy new car or wears designer clothing, it might be time to take a closer look. Check out stories of an inheritance, a lottery win, or a partner’s promotion – many people come up with a cover story for why they are suddenly big spenders.
One person has signing rights and balances the books. This often happens in smaller companies. Different staff members should be doing these tasks and it should be rotated. It also places unnecessary temptation in someone’s way if they know they can easily get away with pocketing some cash. Business owners feel reluctant to check up on a long-time trusted employee as it could insult them. Fraudsters can abuse this reluctance.
The employee never takes annual leave. Someone who is busy stealing money (whether with false invoices, company EFTs into their account, or payroll fraud) cannot afford to go away, and possibly let someone else check their records or files. The company won’t get someone to fill in for them if they are away for a day or two, but if they go away for three weeks, their job will have to be taken over by someone else. They cannot take this risk for fear of being found out.
An employee is having a financial crisis. A messy divorce, medical bills, debt, or a partner who was retrenched are all reasons why a trusted employee may look at the company’s cash differently. Personal financial pressure can lower someone’s standards – and everyone who steals from their employers start off thinking they are going to pay it back. Over time, it just becomes too much for this to be a reality. However, this certainly doesn’t mean that everyone who is having a crisis is a thief.
First in, last out. Someone who is there before everyone else and leaves last in the evenings may not just be diligent. They may need time alone to fiddle invoices, make phone calls to a partner in crime, or do transfers they don’t want others to observe. Someone who is hiding something can also be very defensive about their ‘territory’ and be unwilling to share task and responsibilities with other employees in what they consider to be their department.
Constant shortages. Mistakes happen – but they happen in both directions. All waiters, for instance, sometimes have too little, and sometimes too much cash at the end of the day. Look out for the one who is always short. The same goes for stock shortages, so it is a good idea to compare the patterns of shortages between different employees. Also check incoming supplies/orders to see if there is excessive spending on certain things, such as office supplies.
Someone who feels hard done by. Being overseen for a promotion, or not getting the raise they wanted, could make someone feel resentful. This increases their temptation to steal from the company, as they feel the money is rightly theirs.
Very close to certain clients. If an employee is friends with a supplier or vendor, it might be a red flag. If they see each other after hours, or the client always asks to speak to that particular person, they might just be friends, but they could also be colluding in some way. Double check the invoices coming from that particular client, and see if they are inflated, or if the sales slips have been voided more often than usual. Be vigilant if a supplier or client is a family member of the employee.
Missing documentation. Things can and do go missing, computer files can be wiped out and invoices can disappear. But if it seems to happen to the same person all the time, there could be a problem. Check if there is a pattern here.
The business is losing cash. You think the business is doing well, but the income remains low. Maybe your observations about how the business is doing are incorrect, or perhaps one of the employees is siphoning off the profits.