Fraud Prevention Tip: Trust Your Instincts

Without trying to justify anyone’s overactive imagination and undue since of paranoia, I want to finish my series on fraud by providing you with one last fraud tip: trust your instincts.

That’s not a reason to go firing people without evidence, but if you think that something fishy is afoot, trust your instincts and investigate further. It’s your business – or at least it’s in your charge – and you don’t have to feel guilty about questioning processes, transactions or people.

I recall a manufacturing company in Columbia, SC that was making a dress line for an outlet mall chain. The president of the company had a nasty gambling habit and owed the mob several hundred thousand dollars from Atlantic City gambling debts (I was brought in because he took his eye off the ball). To pay his debt, he was operating some special sales on nights and weekends when the plant was closed. He would simply pull a truck right up to the warehouse, load merchandise onto it and sell it to the mob at a discount; they would apply that against his debt.

All of a sudden our shrinkage went way up, and I had to figure out what happened – but I couldn’t. To date he had been a good president, and he ran a tight ship. I couldn’t figure out what it was that was ravaging the shrinkage numbers, but something wasn’t sitting right with me, and even though it seemed dramatic, I had to trust my instincts. Thus, I hired a private detective to spy on the warehouse just in case there was something I was missing. I expected to find some miscellaneous and uncoordinated left that I was just otherwise missing, but what I learned was the magnitude of the operation going on behind my back.

As in all fraud cases, I’m glad I trusted my instincts and hired a private investigator. And that’s the advice I want to leave you with regarding fraud: trust your instincts.

Have you ever trusted your instincts only to find exactly what you feared? Have you not trusted your instincts to your detriment?


Fraud Prevention Tip: Don’t Rehire People Who Steal From You – Seriously

My lengthy post on the need to always prosecute those who steal from you included an exploration of those reasons that people fail to prosecute and how not doing so is a larger problem for the business world. Now I’m going to provide you with a very concrete story that I hope highlights why you always prosecute and why you never – ever – rehire people who steal from you.

I was once turning around a company at which a sales manager had a scheme with a customer.

The published sale’s price of this company’s primary widget was $8.50. The salesperson in question would place an order for a particular customer of his, ship the merchandise to the customer and then go to accounts receivable and put through a credit memo for that customer which would net the customer a price below the list price of $8.50. The customer would then slip the salesperson 50% of his savings. That is, the customer would pay $4.50 for the widget, thereby saving a total of $4/widget, half of which ($2) he would give back to the salesperson.

Because something like this can easily slip below the radar in a company with enough customers the financial impact might be minimal; thus, it’s very easy to go undetected for a while. The reason I discovered that this was happening was because the guy got greedy and started doing this with multiple customers. In his hastiness he put the credit through for the wrong company. The accounting department at that company was honest and came to us to disclose this erroneously applied credit. When we researched the credit we discovered what was happening, and the whole scheme unraveled.

As a result, this guy was fired (thank goodness) and never prosecuted (rats).

Apparently, this guy was an excellent salesperson, and even though he was ripping off the company for which he was working, he was simultaneously drumming up a remarkable amount of legit business. After he was fired the company’s sales declined by 25% over the next two years. Unsure of what to do and unable to find a suitable sales force to replace this one guy, the CEO rehired the once-thieving salesman (and as I always say, “Once a thieving salesman, always a thieving salesman”).

When asked why, the CEO said that the salesman had found God, repented for all of his sins and begged forgiveness. Though he never made monetary restitution for his misguided ways, he nonetheless apologized sufficiently enough for the CEO, who rehired him to return the company’s sales to a profitable level.

Lo’ and behold, six months later they (finally) put the salesman in jail because he started stealing again. Don’t make me say the following twice – please.

Do not rehire people who steal from you – ever.

This one is not a tip or a simple recommendation – I’m imploring you.

I believe in second chances in life. We all screw up at one point or another, and I dare say, we all deserve to find forgiveness. Despite that, do not rehire people who steal from you. If you think that you might not be able to keep to this because you’re such a forgiving person, then put it in your company’s bylaws to prohibit you from rehiring thieves despite your wishes otherwise.

Do not rehire people who steal from you. Seriously.