This first part of a two-part look at what HR departments can and cannot do when it comes to investigating employees.
The numbers are shocking: 82 per cent of the worst business frauds are committed by employees and of those, a third are carried out by management.
The numbers alone speak volumes about what is going on in workplaces across the country and across the world. It makes every employee suspect and HR departments antsy.
In dismissing these numbers, employers may be leaving themselves open — and in some cases actually making it easier — for abuse and ultimately economic loss at the hands of the very people they employ.
“It goes on in almost every business in Canada,” says Nick Hodson, of Ernst & Young’s Investigative and Forensic Accounting Unit, authors of the international survey Fraud: The Unmanaged Risk.
Sobering statistics are prompting HR departments and employers to be more vigilant in their hiring and monitoring of employees.
Employers are now using investigations to not only uncover cases of employee fraud but for allegations of sexual harassment, or to check new hires, and they have an arsenal of weapons available to them from reference checking professionals to installing hidden video surveillance cameras. But experts say “managing the risk of fraud” and making investigations a last resort option should be HR’s goal.
The question is what can employers do and what shouldn’t they do to protect their interests?
“Managers can’t run their businesses like Fort Knox. They have to accept that it’s a risk of doing business. But the infrastructure can be put in place to manage that risk,” says Hodson.
Managing the risk
An overwhelming majority of employers are actually leaving the door open for abuse by not doing enough to prevent it.
While he admits a part of the reason for their inaction is the lack of data tracking monetary loss, Hodson says most managers and executives don’t want to believe their employees are stealing from them. It follows that “if people think it’s not going to happen they aren’t going to manage it.”
The most common types of business fraud in the workplace are padding expense accounts, forging and reissuing invoices and offering and accepting kickbacks.
There are three main motivating factors behind employee fraud: opportunity, motivation and rationalization. And the easiest solution — and less costly in the long run — is to attack these three elements from the outset.
“The only thing standing between you and fraud is time because it will happen if these conditions are present.”
Employees who steal from their employers are almost always dealing with personal problems, either drugs, extra-marital affairs, gambling or money problems. Financial problems are the most prevalent.
Taking that into consideration, says Hodson, HR policies can be put in place to reflect these needs, like offering employees financial planning or outside counselling services.
“One of the most effective ways to stop stealing from you is to have employees find other ways to deal with their problems,” he says.
Codifying conduct
Consolidating policies into a code of conduct as a reference for what is and what isn’t acceptable is an effective tool. But having a nicely formatted book of rules sitting on an employee’s shelf won’t in itself act as a deterrent. The rules also have to be developed and administered properly, which is where employers are lagging. According to the Ernst & Young survey, only 58 per cent of organizations interviewed had a person for staff to report fraud to.
“You have to make these statements real for individuals in a participatory way because it is more effective and ensures greater compliance,” says Hodson.
At Alcan Aluminium Ltd., employees at all levels were involved in the creation of a code of conduct, which took two years to compile and distribute. As a part of the rolling-out phase, employees were designated to “manage” the code of conduct for certain business sectors and employees were given follow-up training.
“We didn’t give it to our employees. We brought it to each employee. It’s the difference between sending your kids to church and going to church with them,” says David Kennedy, who used to manage Alcan’s code of conduct.
Bell Canada established an ethics program in 1995, introducing a confidential employee helpline and an amended code of business conduct. The program now includes an annual review of the code when employees and managers meet to go over performance reviews, and a three- to four-hour training seminar available on Bell’s intranet.
Joan Grass, associate director of competitive business practices at Bell, says she measures the program’s success by the nature of calls she now receives from employees.
“I used to get calls from people who said they had done something and now I get calls from people who say they are thinking of doing something and want to know how it fits into the code if it even does at all,” says Grass.
Depending on the nature of the call, Grass will route it to Bell’s legal department, security, an outside EAP provider or deal with the matter herself.
“You have people who are at their jobs everyday making decisions. You have to give them the tools to help them make ethical decisions. This is creating tremendous awareness of employees in considering the code in their daily functions,” says Grass.
While most employees aren’t brought to court on fraud charges or other minor breaches, employment lawyer Soma Ray of Donahue Ernst & Young says organizations that have firm policies with built-in disciplinary action in place may be able to use it as evidence for just cause if an employee brings a claim of wrongful dismissal forward.
“If you want to be able to rely on your policies they should be very clear and administered fairly,” says Ray.
Even with prevention tools put in place, employers may have no choice but to launch an investigation.
Big brother is watching
Privacy considerations are at the centre of employee investigations. According to the American Management Association’s annual electronic monitoring report, 73.5 per cent of major American firms record and review employee communication on the job, including e-mails, Internet use and telephone conversations. That figure has more than doubled since 1997.
An increasing number of employers are choosing to monitor their employees and there’s not much from stopping them from conducting “reasonable” monitoring, says Ray.
“The workplace does not afford employees a great deal of privacy rights. There is nothing legally stopping an employer from being able to monitor their workplace,” says Ray.
While the Criminal Code prohibits certain actions like installing video cameras in bathroom stalls, law doesn’t prohibit the use of hidden surveillance cameras.
The use of these devices raises the most problematic issues for employers.
Darrell Parsons, certified investigator and president of Accu-Fax Investigations Inc., says about 25 per cent of his work involves the installation and monitoring of surveillance cameras, some covert and some in plain view like in an underground parking garage for example. Nine times out of 10, says Parsons, employers install cameras for employee protection, like in isolated walking areas for night-shift workers, or around the perimeter of the outside grounds. “Some people have to realize that it’s a necessary evil, a tool that if used right and properly can be very effective,” says Parsons.
Try explaining that to a group of employees at the Regina Leader-Post daily newspaper, who discovered a hidden camera peering out at them from behind a clock that had fallen during a break in their coffee room.
Management at the newspaper told the workers that the camera had been installed after a worker made allegations of sexual harassment in the department.
While the intentions of managers may have been good, the covert use of cameras nonetheless has the potential to have a chilling effect on the workforce: distrust, lowered morale and a drop in productivity.
The law aside, Ray says this point could prove to be the most detrimental for employers.
“In today’s marketplace, taking draconian methods can be very dangerous for employers where retention and recruiting the best and brightest in the workplace is a priority. Employers should consider whether they want to use these intrusive methods,” says Ray.
In some industries, like banking where surveillance is a security issue, Ray says employers should make employees aware that such devices are being used.
Employers are not only using investigations to uncover criminal behaviour but are also using them as a business tool to gauge the climate of the frontline. For example, explains Parsons, one client used his services to place an undercover employee into the workplace to see how new employees were being treated, if they were being trained properly and how they worked with others. Another client, says Parsons, solicited his services when productivity took a downward spiral.
These investigations are referred to as “integrity testing,” says Parsons.
“They’re looking at the whole picture now. They are not just targeting a problem but they are looking at the reasons why certain things may be going on, like high turnover or absenteeism.”
Next issue investigating suspicious workers’ compensation board claims, reference checking, new privacy legislation and the law surrounding health information.
The numbers alone speak volumes about what is going on in workplaces across the country and across the world. It makes every employee suspect and HR departments antsy.
In dismissing these numbers, employers may be leaving themselves open — and in some cases actually making it easier — for abuse and ultimately economic loss at the hands of the very people they employ.
“It goes on in almost every business in Canada,” says Nick Hodson, of Ernst & Young’s Investigative and Forensic Accounting Unit, authors of the international survey Fraud: The Unmanaged Risk.
Sobering statistics are prompting HR departments and employers to be more vigilant in their hiring and monitoring of employees.
Employers are now using investigations to not only uncover cases of employee fraud but for allegations of sexual harassment, or to check new hires, and they have an arsenal of weapons available to them from reference checking professionals to installing hidden video surveillance cameras. But experts say “managing the risk of fraud” and making investigations a last resort option should be HR’s goal.
The question is what can employers do and what shouldn’t they do to protect their interests?
“Managers can’t run their businesses like Fort Knox. They have to accept that it’s a risk of doing business. But the infrastructure can be put in place to manage that risk,” says Hodson.
Managing the risk
An overwhelming majority of employers are actually leaving the door open for abuse by not doing enough to prevent it.
While he admits a part of the reason for their inaction is the lack of data tracking monetary loss, Hodson says most managers and executives don’t want to believe their employees are stealing from them. It follows that “if people think it’s not going to happen they aren’t going to manage it.”
The most common types of business fraud in the workplace are padding expense accounts, forging and reissuing invoices and offering and accepting kickbacks.
There are three main motivating factors behind employee fraud: opportunity, motivation and rationalization. And the easiest solution — and less costly in the long run — is to attack these three elements from the outset.
“The only thing standing between you and fraud is time because it will happen if these conditions are present.”
Employees who steal from their employers are almost always dealing with personal problems, either drugs, extra-marital affairs, gambling or money problems. Financial problems are the most prevalent.
Taking that into consideration, says Hodson, HR policies can be put in place to reflect these needs, like offering employees financial planning or outside counselling services.
“One of the most effective ways to stop stealing from you is to have employees find other ways to deal with their problems,” he says.
Codifying conduct
Consolidating policies into a code of conduct as a reference for what is and what isn’t acceptable is an effective tool. But having a nicely formatted book of rules sitting on an employee’s shelf won’t in itself act as a deterrent. The rules also have to be developed and administered properly, which is where employers are lagging. According to the Ernst & Young survey, only 58 per cent of organizations interviewed had a person for staff to report fraud to.
“You have to make these statements real for individuals in a participatory way because it is more effective and ensures greater compliance,” says Hodson.
At Alcan Aluminium Ltd., employees at all levels were involved in the creation of a code of conduct, which took two years to compile and distribute. As a part of the rolling-out phase, employees were designated to “manage” the code of conduct for certain business sectors and employees were given follow-up training.
“We didn’t give it to our employees. We brought it to each employee. It’s the difference between sending your kids to church and going to church with them,” says David Kennedy, who used to manage Alcan’s code of conduct.
Bell Canada established an ethics program in 1995, introducing a confidential employee helpline and an amended code of business conduct. The program now includes an annual review of the code when employees and managers meet to go over performance reviews, and a three- to four-hour training seminar available on Bell’s intranet.
Joan Grass, associate director of competitive business practices at Bell, says she measures the program’s success by the nature of calls she now receives from employees.
“I used to get calls from people who said they had done something and now I get calls from people who say they are thinking of doing something and want to know how it fits into the code if it even does at all,” says Grass.
Depending on the nature of the call, Grass will route it to Bell’s legal department, security, an outside EAP provider or deal with the matter herself.
“You have people who are at their jobs everyday making decisions. You have to give them the tools to help them make ethical decisions. This is creating tremendous awareness of employees in considering the code in their daily functions,” says Grass.
While most employees aren’t brought to court on fraud charges or other minor breaches, employment lawyer Soma Ray of Donahue Ernst & Young says organizations that have firm policies with built-in disciplinary action in place may be able to use it as evidence for just cause if an employee brings a claim of wrongful dismissal forward.
“If you want to be able to rely on your policies they should be very clear and administered fairly,” says Ray.
Even with prevention tools put in place, employers may have no choice but to launch an investigation.
Big brother is watching
Privacy considerations are at the centre of employee investigations. According to the American Management Association’s annual electronic monitoring report, 73.5 per cent of major American firms record and review employee communication on the job, including e-mails, Internet use and telephone conversations. That figure has more than doubled since 1997.
An increasing number of employers are choosing to monitor their employees and there’s not much from stopping them from conducting “reasonable” monitoring, says Ray.
“The workplace does not afford employees a great deal of privacy rights. There is nothing legally stopping an employer from being able to monitor their workplace,” says Ray.
While the Criminal Code prohibits certain actions like installing video cameras in bathroom stalls, law doesn’t prohibit the use of hidden surveillance cameras.
The use of these devices raises the most problematic issues for employers.
Darrell Parsons, certified investigator and president of Accu-Fax Investigations Inc., says about 25 per cent of his work involves the installation and monitoring of surveillance cameras, some covert and some in plain view like in an underground parking garage for example. Nine times out of 10, says Parsons, employers install cameras for employee protection, like in isolated walking areas for night-shift workers, or around the perimeter of the outside grounds. “Some people have to realize that it’s a necessary evil, a tool that if used right and properly can be very effective,” says Parsons.
Try explaining that to a group of employees at the Regina Leader-Post daily newspaper, who discovered a hidden camera peering out at them from behind a clock that had fallen during a break in their coffee room.
Management at the newspaper told the workers that the camera had been installed after a worker made allegations of sexual harassment in the department.
While the intentions of managers may have been good, the covert use of cameras nonetheless has the potential to have a chilling effect on the workforce: distrust, lowered morale and a drop in productivity.
The law aside, Ray says this point could prove to be the most detrimental for employers.
“In today’s marketplace, taking draconian methods can be very dangerous for employers where retention and recruiting the best and brightest in the workplace is a priority. Employers should consider whether they want to use these intrusive methods,” says Ray.
In some industries, like banking where surveillance is a security issue, Ray says employers should make employees aware that such devices are being used.
Employers are not only using investigations to uncover criminal behaviour but are also using them as a business tool to gauge the climate of the frontline. For example, explains Parsons, one client used his services to place an undercover employee into the workplace to see how new employees were being treated, if they were being trained properly and how they worked with others. Another client, says Parsons, solicited his services when productivity took a downward spiral.
These investigations are referred to as “integrity testing,” says Parsons.
“They’re looking at the whole picture now. They are not just targeting a problem but they are looking at the reasons why certain things may be going on, like high turnover or absenteeism.”
Next issue investigating suspicious workers’ compensation board claims, reference checking, new privacy legislation and the law surrounding health information.
