Where There’s Smoke, There’s Fire: Extinguishing Workplace Fraud

A quarter of fraud is found by accident. Awareness and instinct are key elements of uncovering and stopping fraud before it’s too late.

Posted by Joe Gerard in on May 19th, 2011

If an employee takes home a pen from work, does that constitute workplace fraud? Technically, yes. It’s theft, but probably not the kind employers want to worry too much about. However, there are many other small acts of theft that occur in organizations that do deserve significant attention as they can be a harbinger of larger issues. When we asked forensic accountant and fraud investigator, Tracy Coenen, to give us some tips on searching out and eliminating corporate fraud, she stressed that the small acts of workplace fraud are the are most common and that, while they are not likely to bankrupt a company, employers should not ignore them.

Sweat the Small Stuff

“The small things typically don’t put a company under. The problem is that when we have these small frauds they can be a sign of a much larger things going on,” she says. “We really want to pay attention to those and ask if they could be symptoms of other large problems.”

FREE Investigation Report Template

Prepare thorough, consistent investigation reports with our free report template.

Download Template

Coenen relates a case she worked on in which an executive was known to be stealing on his expense report. “It was sort of a joke in the company. Everyone knew that he would take a receipt from a five-dollar a cab ride and add a one to the front of the number so that he’d get ten dollars,” she says. The staff found this amusing, considering that he was very well compensated and still stealing ten dollars at a time from the company.

After this went on for a few years, it was discovered that he was involved in another, much larger, theft. If the company had paid attention, rather than finding the situation amusing, they may have prevented the loss of a significant amount of money.

When Workplace Fraud is Discovered

The first thing an employer should do when they suspect that an employee is stealing is to call their lawyer, advises Coenen. “You want to make sure you are handling the situation in a legal way, in a way that if there is litigation down the road, that whatever you did is acceptable.”

She also advocates taking a long-term view of the situation and its consequences. “When you have a fraud today, you want to be thinking that if the same thing happened a year from now, the employees would know that this is wrong and know that they can come to us and that we will be fair.”

Not every discovery or hotline tip is credible or worth spending a lot of time and money following up, says Coenen. If the case is against someone who is no longer with the company and poses no immediate threat, you need to take into account the value of the fraud and whether or not there is a chance to recover the lost money.  “Sometimes there comes a time when it makes no sense to invest money in investigating further.”

If what you’re going to recover is minor or if there is no other compelling reason to continue investigating, Coenen advises that you consider the costs. If it’s a potential FCPA violation, however, you may need to keep investigating to meet your obligations if there is potential for the government to become involved.

Go With Your Gut

If Coenen has one main piece of advice for employers who are faced with a possible case of workplace fraud, it’s to trust your instincts, for better or worse.

“I’ve been in an investigation where everyone looks ok, but you really feel that something seems off. There are questions that aren’t answered or odd things I see in the books but I don’t know why. Gut instinct is very, very important.”

In spite of all the anti-fraud resources available to companies and the increase in fraud prevention efforts, one-fourth of frauds are still discovered by accident, says Coenen in her book, Essentials of Corporate Fraud. In these cases, awareness and instinct are key elements of uncovering and stopping fraud before it’s too late.

Joe Gerard
Joe Gerard

CEO, i-Sight

Spend my days showing off the i-Sight investigative case management software and finding ways to help clients improve their investigations. Usually working with corporate security, HR & employee relations, compliance and legal teams.

Visit Website