red flags of fraud

by

You Can Fight Fraud. And Win.

We all know Smokey the Bear’s slogan. “Remember – only you can prevent forest fires.” You can use the same slogan for fraud: only you can prevent fraud in your company.

I couldn’t let National Fraud Awareness Month slip by without mentioning a major contributor to revenue loss for a company. In its 2016 Global Fraud Study, the Association of Certified Fraud Examiners (ACFE) reported that a typical organization loses 5% of its revenue in a given year as a result of fraud.

Let that sink in a minute – 5% of your total revenue. Billing schemes and check tampering pose the greatest risk. And here’s another thing to think about, the perpetrator’s level of authority is strongly correlated with the size of the fraud. The higher up the thief, the bigger the theft.

I have written extensively about fraud as it can severely damage a company, and can even cause it to fail. While you can’t prevent fraud 100 percent, you can lessen its effect on your business. Does your company have strong enough fraud prevention measures in place? Here are a few articles to get you started.

Best friends, grandmothers, partners, even church ladies – I’ve seen them all commit fraud. When it comes to protecting your assets, trust no one. Don’t ever think that you know someone well enough to say, “He would never do that.” Maybe not. But don’t find out the hard way.

Sadly, the same goes for family members. Just read about the sad case of Gladys Knight and her son and what he did to her poor chicken and waffles restaurants.

I once worked with a company where the younger brother was running the business and took a salary beyond the limits allowed by the corporate minutes. Unfortunately, the fraud was only discovered after Daddy died and the statute of limitations had run out.

Fraud can occur when you have three elements: pressure, opportunity and rationalization. Knowledge of the fraud triangle is the basis of any successful fraud-deterrence program.

To catch fraud early, you need to know what the red flags are. One of these is when an employee exhibits behavioral changes, undergoes a sudden change in lifestyle or has financial difficulties. Read the article for four other red flags you need to be on the alert for.

According to the ACFE, the most common way internal fraud is detected is by receiving a tip from someone. One of the things your company can do is set up an anonymous hotline for anyone to report suspected theft. Their numbers show that organizations that had one were much more likely to detect fraud than those that didn’t – 45.3% to 28.2%.

My book “How Not to Hire a Guy Like Me: Lessons Learned from CEOs’ Mistakes,” is now available as an ebook.

by

Unethical Tech Workers Pose Danger to Your Business

Fraud and embezzlement are two dangers to every company. I’ve written a lot about instituting policies and steps to take to help make your company safe from employee theft. These tips primarily focus on those employees who have access to your financial accounts.

But they aren’t the only employees you need to worry about. Your IT employees may also be capable of potentially causing massive damage to your company, as pointed out in a recent article in Fortune magazine, “How much do you really know about the tech worker you just hired?”

We have all read the headlines about companies like Sony, Target and Anthem/Blue Cross being hacked by outsiders. What is less common knowledge are the problems that can come from within the company. Yes, your own IT employees could be a threat. They have access to valuable information, and if they desire, can threaten to make it public if you don’t pay up. It’s the new age of blackmail.

There is really no way to know how often this happens, because like with many cases of fraud or embezzlement, the corporation often keeps it quiet so it won’t draw unwanted publicity.

And even if an employee leaves, he or she can still potentially blackmail you. It’s been reported that Nokia regularly deals with security issues, including being blackmailed by a former employee who obtained classified information. According to an article in the Helsinki Times, in 2007 a blackmailer asked for millions of euros to protect an encryption key of Symbian phones. The release of that information could have caused millions of dollars in damage.

At least he’s a charitable blackmailer — he asked for half of the money in cash and for the other half to go to charity. Nokia made the donation and paid the ransom, delivering half of it in an ice hockey equipment bag. The blackmailer took the money and ran. The crime is still under investigation.

So how do you protect your company? Your tech employees most likely have access to potentially damaging information about your business. And it can be a whole lot more difficult and complicated to prevent tech blackmailers than it is to set up checks and balances on your financial accounts.

How to prevent problems with tech employees

The key is to start with your hiring practices. Companies desperate to hire qualified tech workers have been guilty of skipping over crucial steps when selecting new employees. Ken Springer, a former FBI agent and founder of Corporate Resolutions, suggested these steps in the Fortune article: Verify everything on the resume, ask your current IT people to check their references, let prospective employees know you will do a thorough background check and reward employees for referring good tech people to hire.

In addition to these tips, I would add some of my previously recommended tips on fraud prevention that can apply here as well, including:

  • Conduct credit checks. Exercise caution in considering any employee in a dire financial situation.
  • Always prosecute fraud. Make it clear you have a no-tolerance policy.
  • Train your managers to pay close attention to their employees’ behavior and for any changes in that behavior. See More Red Flags of Fraud and The Red Flags of Fraud.

Sadly, threats to the wellbeing of your company can come from both internal and external sources. It’s worth the time and expense to make sure you are hiring ethical and honest tech employees.