‘Fraud buster’ series – Dealing with employee frauds

Employee frauds

The positivity emanating from the India growth story can sometimes be shrouded by a dark shadow – a danger called fraud. Over time, awareness levels around advanced threats have increased owing to focused regulatory changes; this has led companies to re-examine their business practices. However, there are still many instances when they may struggle to cope with challenges accompanying this growth – the effects of which could be detrimental.

The impact of fraud to any company or industry is huge and cannot be tackled with a one-size-fits-all approach. There are various avenues which need to be considered and it is critical for companies to identify a fitting mode and channelize resources to protect their business. Through this series of select blogposts, we will delve deeper into various fraud scenarios and exemplify measures that could be used as potential ‘fraud busters’.

Let us begin at the very core of any organization – its employees.

Today, organizations lay the foundation of a robust anti-fraud mechanism by investing in fraud prevention, detection and management frameworks and tools. While these are essential in creating a prolonged protective mechanism, it is paramount to give attention to the organization’s employee base. In recent times, there have been a few cases of employee related frauds which hit the headlines. But the reality is that almost all organizations tend to encounter roadblocks on this front, though they may be smaller in magnitude. Strong internal controls and rigorous processes could reduce the available opportunities, but a determined ‘insider’ who is sufficiently motivated may find a way to override these controls and cause irreversible damage.

Employee fraud can span across multiple situations such as exploiting company assets, diversion of company funds, obtaining kickbacks from vendors and even creating “ghost” employees or bogus suppliers. Employees can also defraud companies by forging cheques, falsifying travel claims, taking sick leave but working elsewhere, abusing flexible working time systems etc. Their intent could be driven by a series of motivators – a pressurised work environment, debt, family emergency, unethical values etc.

A striking characteristic which is seen in many such cases is that such employees tend to justify their act of committing offences or frauds. They end up offering excuses which makes these acceptable, some examples include,

  • “If other employees can do it, why not I?”
  • “I am underpaid or overworked”
  • “I am only taking a temporary loan, and will repay the organization or customer”
  • “My targets can be achieved only by this way”
  • “This cannot be detected or may be detected only after years”
  • “My boss guided me to do this”

The complexities of human behaviour has increased the need to understand and manage the impact of employee related issues better before they snowball into a probable fraud situation. This can be managed by taking the human resource management approach as at the end, these values need to be ingrained into the inherent fabric of the organization’s culture.

‘Trust’ is the basis of most business dealings in India and it is rare to spot a business relationship forged in its absence. So how can organizations deal with an internal breach with this core attribute in mind? This gives rise to a host of questions: What would be considered a breach of trust? Should perpetrators be apprehended if this misconduct improves business? As an old proverb says, ‘where there is a will, there is a way’, organizations can address these issues by undertaking,

  • Exhaustive employee background checks, compulsory job rotation, avoidance of potential conflicts of interest, access to sensitive data
  • Maker-checker approach, special or surprise reviews, mandated annual vacation, multi-level customer interaction, whistle-blower protection

At the end, organizations need to make transparency an urgent priority and reinvigorate commitment from the management and their board toward ethical growth. Tone at the top is centrifugal – management must constantly weigh the organization’s particular fraud risks and assess its existing controls in light of them. As situations differ, there is a dire need for the leadership to think about the evolving dangers and evaluate how to tread carefully in order to avoid them. It is the responsibility of the organization to ensure that they take adequate processes to drive down the right message about their principles and advocate a ‘zero tolerance’ policy. Only then will they be able set sail on the correct note and manoeuvre around the host of obstacles which they may encounter on their journey to mitigate fraud.

(The above is first in the series of blogposts which will deal with different fraud scenarios and highlight measures that could be used as ‘fraud busters’)


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