Preventing Employee Fraud

Employee fraud is far more prevalent than most businesses realise. Recent cases in the media include allegations against Tessa Grant, a long serving employee at Sky City Hamilton, who has been charged with 49 fraud-related charges totalling $2.5 million, and Dionne Guinness who stole more than $350,000 from a small, owner operated Mount Maunganui company. She was sentenced to 2.5 years prison. (click for case review here)

It is often long serving, apparently loyal employees who are the perpetrators of company fraud. This raises two key questions – how do they get away with it for so long, and what drives them to commit the fraud?

The fraud triangle, a hypothesis developed by criminologist D R Cressey, is a model for explaining the factors that cause someone to commit occupational fraud. It consists of three components which, together, lead to fraudulent behaviour:

The opportunity – this is the area employers have the most control over. The opportunity to commit fraud is possible when an employee has access to assets and information that allows them to both commit and conceal fraud.

Pressure - The perception of a need or a pressure. It does not matter whether the pressure makes sense to others or is based in reality.

Rationalisation – the employee rationalises their behaviour, justifying to themselves that what they are doing is okay. For example, they are just ‘borrowing’ the money, they are underpaid, or the employer deserves to be stolen from.An employee committing fraud in the workplace continues to be able to do so, often due to lax checks and balances, because of the complete trust placed in the employee. Here are four strategies to put in place to limit the opportunity.

1.Check employee references – make sure the referees are the ones you want to talk to not just the ones nominated by the applicant. You must ask the applicant’s permission to contact the referees. If they say no, be concerned about why.
2.Set up checking systems – no matter how trusted the employee, have an authorisation process in place, and segregate duties.
3.Check bank statements - look for unusual patterns, dual endorsements, unfamiliar creditors and unfamiliar financial trends.
4.Ensure employees take annual leave for a continuous two week period – frauds are frequently discovered when the person is not at work to cover their tracks.

Honesty pays, but it doesn’t seem
to pay enough to suit some people.”
—F. M. Hubbard