Do Employees Have Their Hands in Your Pockets?
Kathleen’s house of cards came crashing down while she was at the cottage enjoying her summer vacation. A long-time employee in the accounts department of a multimillion-dollar B.C. manufacturing firm, she had quietly embezzled close to $1 million from her employer over the course of 10 years by creating a dummy company and submitting phony invoices for non-existent services.
After running her scam for so long, she never dreamed anyone would question her monthly “bill,” but in her absence a vigilant colleague thought it looked fishy. He asked around: did anyone know what the vendor was actually supplying or which department used its services? Nobody knew. Unable to contact the company by phone, fax or email, Kathleen’s colleague went to their boss.
It’s quite likely that Vaclav Vincalek can walk into your reception area, open his laptop, access your file server and download your most sensitive corporate data in a matter of minutes. “If I wanted to, I could send it who knows where to who knows who and there would be zero way to trace it.”
Vincalek, president of Pacific Coast Information Systems Ltd., a Vancouver software consulting firm specializing in electronic security, routinely demonstrates his skill for astonished clients, who didn’t know their crucial, confidential data was quite so vulnerable to hackers and disgruntled employees out to sabotage systems or steal valuable corporate records. He then recommends ways to plug the leaks with advanced security tools such as firewalls and intrusion-detection systems.
Companies are required by law to safeguard private employee and consumer
information. However, organized crime is increasingly targeting databases, often accessing them through crooked employees, as fodder for identity-theft scams.
It’s ironic that the same technological advances that have revolutionized the world of work have also made things easier for white-collar thieves.
And it isn’t just criminal outsiders who screw you over. A recent study of 900 IT professionals in different sectors conducted by online survey provider zoomerang.com found that almost half take data with them when they change jobs – including documents, lists, sales proposals and contracts. Some simply email information to a personal address; others walk out carrying the data, usually on peripheral storage devices such as portable memory sticks, flash drives or iPods, tucked away in a bag or pocket.
Tightening systems
security should never hinder efficiency, says Vincalek. Rather than installing passwords on everything and driving your people crazy, he recommends investing in new security, such as devices with fingerprint scanners authenticated only to certain systems or portable ID cards that lock users out of the system when they walk away from their work stations. Employers should also keep tabs on their own systems teams, he says. If the individual responsible for IT security leaves your organization on a bad note, he or she can effectively shut your business down.
Vincalek urges employers to think of an external form of insurance. “If you have files that would sell on the black market for $1 million, how much are you willing to spend to secure them? Losing data is essentially the same as having your money stolen.”
From the outset, the investigation focused on five individuals, one of whom had left the company. A firm of investigators attempted to trace the supplier through various corporate registries and delved into the background and lifestyle of each suspect. In time they eliminated everyone but Kathleen. She and her husband lived a fairly lavish lifestyle and had just bought brand new cars, which seemed inconsistent with their joint income. They owned recreational property in another province. Kathleen’s sister had recently bought a small business and enlisted Kathleen as a partner.
As the pieces came together, the company confiscated Kathleen’s hard drive, dug back through its records and itemized her fraudulent transactions. On her return, they confronted her with the evidence and she made a full admission. Her 10-year crime spree netted a two-year jail term, and she was ordered to reimburse the company $250,000.
Whether driven by need, greed, revenge or a skewed sense of entitlement, some of the folk you trust the most may right now be palming pencils and paper clips; shorting your cash registers; relieving you of valuable merchandise, office equipment and parts; cashing in on your intellectual property; padding their expense accounts; abusing their gas cards; and even stealing your time.
Mitigating risks associated with employee pilfering is big business today, and it’s getting bigger. Membership in the Vancouver chapter of the Association of Certified Fraud Examiners (ACFE), a 37,000-member international professional organization dedicated to fighting corporate crime in more than 70 countries, is at a record high. Monthly chapter meetings are packed with anti-fraud experts specializing in security, investigation, loss prevention, law enforcement, forensic accounting, law and internal auditing across all business sectors, determined to keep on top of the latest white-collar scams. Of necessity they are a pretty cynical lot; they know from experience there is no limit to human imagination where thievery is concerned, especially when it comes to bilking the boss.
Just how many employees have their hands in your pocket? When U.S.-based investigative and forensic-accounting specialists Michael G. Kessler & Associates Ltd. asked more than 500 workers for their views on workplace theft, a staggering 79 per cent admitted they would steal from their employer. Kessler’s research found that only 21 per cent of employees are truly honest and will never steal, 13 per cent are completely dishonest and have no problem pocketing your cash and assets, and the remaining 66 per cent say they would give it a shot if they saw their co-workers get away with it.
Who are the pilferers in your ranks? You might be surprised to learn that new hires are rarely on the take; it’s more often men than women; and it’s usually older, long-serving employees, those you know quite well and trust implicitly, who are taking more than paycheques home with them. Vancouver-based BackCheck Canada, the country’s largest employment screening firm, says people aged 60 and older are 27 times more likely to steal from you than those under age 25. Career white-collar criminals are generally married, socially conforming and often described as the nicest people you could hope to meet. They appear to be loyal, devoted employees, but it’s a front designed to win your confidence. When your back is turned, they will take you to the cleaners. Interestingly, in its latest Report to the Nation, the ACFE pointed out that the average fraud committed by men was worth $250,000, more than twice as much as the
average for women. The report speculates that the disparity is ¬because men still tend to hold the lion’s share of management and executive-level positions.
A 2006 global study by professional-services firm Ernst & Young found that more than two-thirds of companies surveyed were victims of corporate crime. And the numbers involved are far from piddling. Employee larceny costs Canadian businesses billions of dollars every year. According to the ACFE, last year fraud and theft cost employers an average of $9 a day per employee, with the average organization losing about five per cent of its total annual revenue to thieves. On average most victimized firms lose around $159,000, up more than one-third since 2002. However in 25 per cent of cases, losses passed the $1-million mark. Nine companies surveyed lost more than $1 billion.
Canadian retailers alone are relieved of approximately $8 million of merchandise every day. Surprisingly, employees outsteal the shoplifters. And it isn’t just a case of transient sales clerks with sticky fingers. More than half the fraudsters come from management ranks. South of the border, one-third of small operators that go bust are put out of business by in-house crooks, and it’s a safe bet that statistics are similar here in B.C.
Save over 50% off the newsstand price with a subscription to BCBusiness Magazine
As a recent graduate from
Submitted by Anonymous on Mon, 2009-07-20 13:17.As a recent graduate from SCI Texas' SCI Texas, I recently landed a job for a small corporation that is struggling to keep track of its employees' activities - it is quite a task to keep track of all the financial transactions that go through, and easy for one or two unscrupulous transactions to go through. Hm, I guess this is why demand for accountants such as me is growing!
That's absolutely
Submitted by OliviaB. (not verified) on Tue, 2009-04-07 16:26.