'For a manager to acknowledge fraud, there is implicit in that process an admission that 'Hey, I hired this person''
Employers face constant threats from outside, such as cyberattacks, but right within the workplace there may be another threat ― employees.
“Employees, being inside the organization, have access to records and resources that outsiders do not have. And so, with that access, they can accomplish virtually that much more if they want to perpetuate fraud,” says Alan Mak, national forensics leader at BDO Canada.
This can include cashiers who bring in fake transactions or falsify cash registries, or employees posing as customers or suppliers to get money from the company.
“For example, you might call your real customer ‘XYZ Inc.’ and make an accounts payable to ‘XYZ Co.’ So if someone’s not paying attention, they’ll see the cheque and they’ll sign it, but then it’s being made out to a different company, one that the employee may own, and then [the employee may be] cashing the cheque. So there are these types of transactions where access to records, access to cash can create perpetuated fraud that's difficult to find,” says Mak.
As an example, in 2020, a McDonald’s worker in Hamilton, Ont. was charged with fraud after faking a COVID-19 infection.
The pandemic has created an environment where fraud risks are increased because of the rise of remote work. For one, there’s less on-site collaboration and supervision, he says.
“The other risk is that when we’re all ordered to stay at home, at least here in Canada, a lot of the procedures that we normally go through in terms of our business processes [stopped]... And so when we suspended those processes and did not comply perhaps with some policies, then that creates gaps… that I believe increases risk of fraud.”
Consequences of fraud
Employee fraud can cause significant damage to a company for two reasons, the first being financial consequences.
“Employees have access to information and resources like no other, and the amount of damage they can do is pretty significant. So if an employee can in fact take a lot of money if they do some bad behaviour,” he says.
The other consideration relates to the issue of integrity and trust.
“If you have a significant situation of employee fraud and it [goes] public, then there’s tremendous potential impact on reputation on your business, to the company. Quite frankly, it could be a matter of customers looking at you saying, ‘If you don’t have the ability to control or manage your own people, then why would I have confidence dealing with you? Trusting you with my data? With my employees? With my business?’ There’s a huge question of reputation damage.”
Back in 2019, benefits fraud was in the spotlight when 150 workers were let go from a Toronto hospital in July.
Detecting, addressing fraud
There are signs that employers can look for to detect potential fraud being committed by employees, says Mak. These include:
- employees who live beyond their means
- employees’ spending habits
- employees’ financial troubles
- employees’ family troubles
- employees with addiction issues
- unusually close relationships between employees and clients
- employees who never take vacation
- someone who is very protective of their job duties.
- someone who doesn't want anyone else to know what they’re doing or how they’re doing things
To combat fraud, employers should have clear policies about expected conduct, along with a whistleblowing policy for employees to report wrongdoing, “which is actually the number one way to prevent fraud,” he says.
Spot checks can also help, which include internal audits or managers being diligent with their work, so people know that they’re being watched.
However, detecting fraud may not be as easy because of “a fundamental disjoint,” says Mak. That’s because managers may have a huge blindspot when it comes to someone they’ve hired.
“For a manager to acknowledge that there's a concern about fraud or to acknowledge that there has been fraud, there is implicit in that process an admission that ‘Hey, I hired this person. And this person might not be as good as I thought they were, in fact they’re stealing from the company’. So it’s kind of going through a divorce. In order to recognize it, you have to leave the relationship. You recognize that you made a mistake and it’s time to move on. And that whole psychological process is not easy.”
When an employer suspects or confirms that there is employee fraud, it should involve a lawyer immediately, says Mak.
“You want to make sure that you’re dealing with the situation properly. There are a number of factors that come into play, including how to deal with the employee, whether to terminate them, or what rights you have as an employer or rights they have as an employee regarding that relationship. And how to go to the next steps, making sure that evidence is collected and protected and making sure you’re building up the case, whether it’s criminal or civil, so that once you know that this fraud has happened, you can keep the avenues open to you in terms of how you pursue matters.”