Sometimes business owners believe that socializing with their staff is a good way to promote camaraderie and develop a more relaxed atmosphere. Some host parties at their homes or meet staff for an after-work drink. While learning about your staff can promote a team atmosphere, hosting parties or meeting staff for an after-work drink could put you in a vulnerable position. Regardless of how much you like the people who work for you, keeping your distance can protect you from being taken advantage of by an employee.
In one case, a business owner and his wife made the accountant their daughter’s godmother. They were very close to her and trusted her completely. When they caught her embezzling, having stolen thousands of dollars, they were shocked. Unfortunately, this happens all the time. Trusted people aren’t watched that closely, so they are handed the Opportunity, one of the three legs of the fraud triangle. The other two legs are streamlining and financial pressure, and they are under the control of the employee, not the business owner.
Academic research tells us that there are different ways to spot someone who will engage in “deviant behavior” in the workplace. If you have certain characteristics or traits, the first theory says that you will look for a way to steal. This theory states that integrity testing will prevent you from being hired in the first place.
A second theory takes a “worst case” approach, saying that everyone is willing to steal, and the only way to avoid it is to establish controls to prevent it.
The third theory, typically called a psychological contract, states that the employee has a set of expectations in her head that include her personal definition of fairness. If your employer does something that violates your expectations, it doesn’t matter what your integrity test scores were, or if your employer has any hint of your definition of fairness. You will justify yourself that stealing is not only acceptable, but necessary to correct the damage that has been done to you. This mistake can be as obvious as being overlooked for a promotion or as subtle as a look on your boss’s face.
The three legs of the fraud triangle are rationalization, financial pressure, and opportunity. If these theories are correct, you have no control over an employee’s personal expectations and you cannot control their rationalizations. Financial pressure may be somewhat more manageable, but you may not be aware of a gambling problem, a shopping addiction, or a sick family member requiring expensive medications. The only leg of the Triangle that you have control over is Opportunity, and that’s where the separation of duties comes into play.
When hedging your bets, the best way to prevent deviant behavior is to establish controls that help to automatically verify and flag potential problems. Whether mistakes are made by accident or intentionally, the controls are there to help detect them and provide you with the important tools you need to grow your business and provide employment and opportunity to your community.
Do you think it can’t happen to you? Would your employees never do that? Do you know them too well? Think about these situations.
Situation # 1
You were lucky enough to earn a lot of money in your expanded business. You enjoy high-performance vehicles, so you bought a fast car to celebrate your success. If you knew you wouldn’t be caught, how fast would you go down the Interstate?
Situation # 2
He closes the store late one night and, as he walks to his car, he finds an envelope with $ 10,000 in cash in small bills. There is no one around to see you pick it up and you know there is no way to track it down. Will you keep it?
Situation # 3
His daughter is seven years old and was recently diagnosed with cancer. There is a new treatment that works well in Europe, but it has not been approved by the FDA in the United States. You don’t have money to blow up your daughter and pay for the treatments. But he has access to checks, books, bank statements, and is a checking account signer at work. What would you do to save your daughter’s life?
Employee embezzlement and theft happen every day. Most schemes are never discovered. Putting controls in place to make sure your business loses as little as possible to theft is an easy way to improve your bottom line.