A recent personal experience has reminded me of the importance of ensuring that clients have adequate controls in place for both the prevention and identification of employee theft and fraud.
Where theft has occurred business owners and managers
consistently express surprise that the person concerned was capable of such
acts. My case was no different - here was
a long serving (8 years) ‘employee’ of Shaw Family Limited who consistently
received good references and had never been in any trouble – let’s call him
Employee A.
Lesson 1 – Take a robust approach to theft
Looking back our disciplinary process was highly lacking;
employee A had recent 'previous' and perhaps action was not taken to address the
situation at the time.
The first incident was petty in nature….. Our ‘employees’ love dried mango and consequentially
employing the principle of economies of scale we buy the stuff in bulk. Anyway we discovered (see Lesson 3) about 2
months ago that this stock was being misappropriated without our knowledge. Whilst we raised this issue with all our
employees we took no further action other than to place additional security
around that product.
Then last weekend we discovered in Employee A’s ‘residence’ a box containing sweets, snacks and empty wrappers. When confronted, Employee A expressed immediate remorse and gave an endearing story as to why he had found it necessary to squirrel away these items. He received a verbal warning.
What we should have realised was that this was a slippery slope – I can only assume that our failure to address these minor infractions resulted in Employee A believing he could get away with things. However last night the actions of Employee A resulted in Shaw Family Limited experiencing immediate albeit temporary cash flow issues.
Last night my fellow director, wishing to pay for her Christmas party, needed some cash and as I had only 2 days ago been to the cash machine and withdrawn £100 went to my petty cash box (wallet). It was empty and as such it appeared that she would be unable to make the payment. I racked my brain for an explanation; had I dimwittedly not taken the money out of the machine, was I confused and hadn’t been to the cash machine at all, could some pickpocket take a small bundle of notes out of my wallet leaving my credit cards, had I been out or to the pub since the cash machine, etc. None of it made sense.
Lesson 2 – understand the drivers for theft/fraud
They say that in recessions fraud becomes a bigger issue:
-
- The impact of fraud on the business concerned is
higher and therefore more likely to be identified.
Lesson 3 – Establish robust controls for detection
Whilst many businesses take the view that it won't happen to me, it could and sometimes it does and therefore ensuring that any issues are identified early is vital. In terms of theses 3 particular situations the methods of detection were different:
-
Mango – it ran out faster than it should have done. This I have seen in practice where, despite a healthy business, it simply runs out of cash.
- Sweets and Snacks – the perpetrator was on holiday and the theft was discovered by another employee undertaking routine tasks in the employee’s absence (Employee K opening a playmobile box). This takes me back to my audit days when one of the items on the work programme was “Do accounts staff take their holidays”.
- Money – the first stage of detection was the reconciliation of what funds there should have been compared to what there actually was. Basic accounting controls can go a long way to identify whether a fraud has occurred or in process - in this case we were lucky in so far as it was his greed at taking all of the money that highlighted it. The second point on this incident related to whether there are other indicators such as the employee appearing to live outside their means or demonstrate wealth inconsistent with their remuneration? In this case a money box crammed full of
notes was an indicator that perhaps all was not right.
Lesson 4 – Establish robust controls for prevention
Whilst this comes after lesson 3 in this example, prevention is always better than cure – in this case recovery of misappropriated funds was simple and easy but this is rarely the case in the commercial world. Shaw Family Limited’s cash flow difficulties last mere hours whereas in the real world the effects can be long lasting and the business affected can require professional advice on both stabilisation and recovery.
A full review of this situation has now resulted in the following measures:
- Mango is kept in a high cupboard
- Regular sweeps of the employees’ rooms (I don’t think this is recommended in the commercial world!)
- A cash monitoring process
- Better security over cash; limiting access
Lesson 1 – Take a robust approach to theft (Continued)
Well this morning Employee A was summoned to a meeting of the directors in which he was given the option of owning up. Disappointingly employee A chose not to admit to anything (although I can perhaps take some comfort that this is a sign of intelligence – hoping that he had done something else wrong?). It was only when presented with the evidence that we received a confession and apology.
In terms of explanation Employee A stated that he had been
put up to it by some of his friends. I
am not inclined to accept this and there is no evidence to that effect. Interestingly the name he gave was someone
who is legally represented so probably not the best choice to try to pass the
blame.
Now we just have to work out an appropriate sanction.
