Small crimes, big problem

Staff witnessing fraud fear exposing it. Two-thirds of known crime goes unreported

The Enron and WorldCom scandals put a spotlight on white collar corporate fraud, but what’s closer to home for many Canadians is small-time crimes like taking expensive office items and pocketing company cash.

In the last year, 20 per cent of working Canadians witnessed people stealing from their employers, according to a survey by Ipsos-Reid for Ernst and Young, a professional services firm.

The most common fraudulent activities included inflating expense accounts, claiming extra hours worked, taking kickbacks from suppliers and creating phony supplier invoices.

Those who said they were aware of fraud at their work estimate a loss of more than $1,000 per month. While 73 per cent of those surveyed said they would likely report a co-worker’s fraudulent activities, only one-third of those aware of fraud actually did so. Most respondents said they believed their jobs would be threatened if they reported a co-worker. That tells you something about the business culture they’re working in, said Nick Hodson, partner with Ernst and Young’s litigation advisory services practice.

“If Canadians had some hope that we were more honest than Americans, they can forget it,” said Hodson. “What (the report) is telling us is that if you have over five employees, you’re a victim of fraud. That’s the same result right across North America.

“There aren’t a large number of good corporate role models in the perception of the people we surveyed.”

A survey put out by Watson Wyatt Worldwide — after the Enron scandal — showed many people are questioning the integrity of the organizations they work for. Fewer than two in five U.S. workers had trust in their firm’s top leaders, a five-point drop from 2000. There was also a five-point drop, to 63 per cent, in the number of people who felt their companies were conducting business with honesty and integrity.

If employees feel loyal to their employer they’re less likely to steal from them. A proper reporting system — with a guarantee of anonymity — can also help deter fraudulent activity. Calling a confidential hotline to an outside third party or making an anonymous phone call were cited by respondents as the preferred ways to report incidents of fraud.

Hodson said he suspects the recent scandals had an influence on the way Canadian workers view fraud — the Ipsos-Reid survey was conducted after the Enron story broke. Almost half of the respondents said their employers could do more to combat fraud and things would improve with better leadership from managers and supervisors.

“If employees see the manager get to work late, leave early, and they’re driving Lincolns and Mercedes...they are setting the example, creating the culture and the staff will follow,” said Robert Woodman, a certified fraud examiner with Toronto-based Berkeley International Intelligence Inc. He’s spent the last 30 years investigating fraud. “A lot of managers don’t realize… they have to expect internal problems if they don’t set the example.”

At the executive-level, fraud happens when senior management is given too much power and control and little accountability. Companies are back-pedalling now, checking their paper work, making sure things are in order, Woodman said. White collar crime, he said, is very sophisticated, discrete.

“We’re talking basically cooking the books, the shuffling of money…it could be a whole host of (criminal) activities.”

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