http://www.forbes.com/sites/crime/2011/10/25/mad-as-hell-and-stealing-from-employers/
A friend, who owns and operates a small business, had grown close to his sweet, devoted bookkeeper of 20 years. They shared family dinners, exchanged birthday and holiday gifts, and, by all appearances, enjoyed an ideal working relationship.
But, to his shock, he discovered she had embezzled roughly $250,000 over a 10-year period. The financial loss paled in comparison to the confidence he lost in his own judgment. He is a forensic psychologist and felt he should have spotted the thief. A 66-year-old New York bookkeeper was recently charged with embezzling $16 million from two family owned textile companies, depositing much of the money into her son’s business account.
The Occupy movement, with protest signs reading “One day the poor will have nothing to eat but the rich” and “Bite the hand that feeds you” expose the anger and frustration many Americans feel about the current economic climate. The Association of Certified Fraud Examiners announced, in its Annual Report to the Nations, a dramatic rise in workplace fraud: A typical organization loses 5 percent of its annual revenue to fraud.
This translates to a global loss of $2.9 trillion each year. Churches, non-profits, Fortune 500 companies, small businesses and even the PTA will lose money from trusted thieves. Small employers take the brunt of the losses because they often lack the anti-fraud measures and the resources of large corporations.
Sociologist and criminologist Donald Cressey penned the term “trust violator” in his research on the behavior and motivation of embezzlers. Cressey discovered three factors present in the social psychology of embezzlers. They usually have some financial problem that they feel ashamed of and must keep secret. An opportunity to steal presents itself, and they rationalize the theft in some way that still allows a favorable self image.
For example, a bookkeeper, worried about her sick child’s medical bills, starts playing the lottery, heavily. She finds herself $200 short at the end of the month. She pays some household expenses with her credit card and now the charges are close to the limit. Knowing that auditors don’t closely monitor the petty cash, she finds an easy way to supplement her income by falsifying a small expense each week. She rationalizes the theft by telling herself her employer can sustain this small loss, she hasn’t had a raise in two years, and she’s saved her employer far more than $200 a month by catching several accounting errors over the years.
To spot a potential thief, look for the four D’s. They typically are Divorce or infidelity, Drug and alcohol abuse, Debts and gambling, or Disgruntlement and anger over their treatment at work. These problems propel some people to find a secret solution to their increasing desperation.
To prevent workplace theft, you have to remove at least one of the three causes for the fraud: secret financial problem, opportunity and rationalization. Most employers will catch thieves by establishing anonymous tip lines (40 percent of cases). Testing and background checks of new hires can screen out those more likely to steal. Employers can remove opportunity by cross-training employees, delegating accounting and bill-paying to different employees, establishing random audits, and providing anonymous suggestion boxes or tip lines to encourage communication with management.
But it might prove tougher to stop the rationalizations for theft. After corporate scandals like Enron and WorldCom, corrupt banking practices and corporate greed, the people are angry, scared, in debt and desperate. Young, bright college graduates can’t find work, and neither can accomplished career professionals over 50, while the cost of living ticks upward.
When you can no longer afford your health insurance copayments, you might feel some serious resentment hearing about your employer’s European vacation. When the average CEO makes $344 for every $1 paid to line staff, resentment will likely continue to grow. We live in an environment ripe for the rationalization of theft, fraud, and embezzlement.
Employers can do a lot to slow the hemorrhage of profits caused by employee theft. First take a look at leadership. If the business owner is an angry, type-A, alcohol-soaked billionaire, he or she likely employs some dangerously disgruntled workers. From the top down, does the company value honesty and integrity, or do managers cheat on their time sheets and expense reports? Do managers promote and hire ethically and fairly, or is the promotion or job given in exchange for favors? When employers cheat, they hand their staff a gift-wrapped rationalization just in time for Christmas.
A second way to minimize the rationalization of fraud is to establish a corporate code of ethics. Dishonest behavior by management can reduce the performance of highly skilled workers by 25 percent and increase employee turnover rates. Companies without a working code of ethics experience less productivity and more P/E volatility. Not surprisingly these organizations also experience more employee misconduct.
People like to work for companies they trust, and customers like to buy from companies they perceive as good. When a code of ethics gets implemented, talked about and enforced from the top down,
It should not surprise us that most of the big-business bankruptcies in recent history were preceded by moral bankruptcy. As Shakespeare said in All’s Well That Ends Well, “No legacy is so rich as honesty.” Believe it or not, it still pays to treat people decently and fairly.
