The temptation is to conclude that, “I could never be an embezzlement victim.” Join the club. That is what most (if not all) embezzlement victims thought. It is worth re-considering though – the stakes are just too high not to. The embezzler has too many tools in his or her bag-of-tricks to think you are safe: cyber fraud, internal fraud, forged checks, misapplied payments, old-fashioned checks, bookkeeper fraud, fake vendors. A one-time bank wire can put an entire firm out of business.1
Embezzlers Only Steal When Trusted
When someone takes possession of something because they are supposed to and then they do something with it they are not supposed to – and benefit personally – that is embezzlement. Yes, I could fill up a page or two with a legal definition and subtleties of the many shades of embezzlement, but it all boils down to something really simple. I trusted you with my stuff and you took it. If you never trust anyone with your stuff, you will never be a victim of embezzlement. Even so, 85 percent of all fraud activity involves a trusted employee.2
Is Earned Trust Enough?
Many people will respond, “people have to earn my trust” or something similar. Embezzlers know this. They work hard to be trusted. They are diligent in small things that they know will be noticed. Drop a quarter, they will most certainly pick it up and return it to you. Embezzlers rely on the old maxim, “He who is faithful with little can be trusted with much.”
Also, embezzlers may be faithful in every area of their life except when it comes to handling the property of others.
Why Trust At All?
The quick cure, of course, is to stop trusting everyone. The problem with this defense is the stifling impact it has on the organization. Paranoid organizations ultimately implode.
The encouraging thing is that three simple practices reduce embezzlement by close to 100 percent.
Cross Train and Rotate
For each person of trust in your firm, train someone else to do their job as a backup. At least once a year, have the person of trust rotate with their backup for a minimum of a week. If your person of trust takes a vacation or is out on sick leave, have the backup employee rotate into the job. Resist the temptation to leave the position vacant simply because the vacancy is short. A potential embezzler will encourage the position to remain vacant rather than be filled by a backup employee. Fill it anyway.
Have the backup employee write a report detailing what the did during the rotation and specifically have them answer these questions:
-Describe what you did while you were working as a backup employee?
-How could the job you were filling in for be improved?
-Describe in detail anything that you encountered that you had not been trained for?
Appoint someone in your firm as an internal auditor. Have that person conduct random reviews at least once a month. A random review could be as simple as requesting from the person of trust a copy of a random bank transaction and the documentation supporting the transaction.
Create a Compliance Culture
What is better than trying to police everyone is a culture of people who police each other, a culture where compliance is a part of the day-to-day conversation. This is accomplished by involving everyone, regardless of their role in the firm. Invite cross-trained employees to share their experience during a department or division lunch. Invite Internal Auditors to share what they discovered. It isn’t necessary to identify a specific transaction or name the specific people involved. Have them generalize their experience and tell how what they learned might improve the firm.
Another technique is to create a way for people to anonymously report suspicious activity. This can be a contact form on your website or an anonymous email. Employees often see things that don’t make sense. They may be hesitant to report because of personal friendships or office politics. Be sure to keep the focus on any potential wrongdoing rather than who made the report.
Change Your Point of View
The best possible source of information is a client after their representation has ended. Send each client a letter after every other transaction has been completed and ask them for advice on how to improve the client experience. Make one of the questions, “How could we improve anything that made you feel uncomfortable during your representation?” You may be surprised to learn that a client has been asked to participate in borderline conduct or something that is just wrong.
These three techniques could save you from big dollar liability. They could save you hundreds of hours of forensic accounting, interviewing witnesses and litigation. It might be uncomfortable to implement some of these techniques. Do it anyway.
### Brandon L. Blankenship
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- ©2016 Brandon L. Blankenship, Image Credit: Hellow my name is Expert, Graham Lavender flickr CC 13 APR2012 ↩
- https://www.regions.com/Insights/Small-Business/Risk-Management/How-to-Deter-and-Detect-Internal-and-External-Fraud ↩