One of the best ways for business owners and managers to uncover possible employee theft is to keep an eye out on the company parking lot, according to private investigator Jim Baker. That’s because employees “tend to improve their vehicles” when they start stealing money from an employer, explained Baker, who owns his own agency in a Dallas suburb. “The best place to keep an eye on whether or not you’ve got fraud is your parking lot,” he said.
Baker was here May 27-28 to run a seminar for the Association of Certified Fraud Examiners at the Providence Biltmore hotel. The Texas private investigator said he gained much of his experience while working as a fraud examiner with Sunbelt Savings, which was a savings and loan institution that failed. His work helped put the bank’s president in jail for his role in the bank’s failure.
He said employers should pay attention to workers’ lifestyles and look for changes that could indicate a problem, such as a developing gambling habit or the purchase of an expensive home. Internal fraud schemes can be committed by low level workers as well as the chief executive officer, Baker told the crowd of nearly 100 people who attended the first day’s program. “The higher up the chain the employee, the more difficult it is to detect (a theft scheme),” he added.
The ACFE is a professional organization with about 25,000 members internationally and 80 members in its local chapter. Its mission is to help accountants, lawyers, law enforcement officials and others figure out how to prevent and investigate fraud, whether it be an employee stealing from a company or an external scheme to defraud the business.
In 1996 the ACFE published the results of a three-year study into occupational fraud and abuse, which included data from 2,608 certified fraud examiners on actual cases involving some $15 billion in fraud and abuse. Among the study’s findings:
Fraud and abuse costs U.S. organizations $400 billion annually.
The average organization loses more than $9 a day per employee to fraud and abuse.
About 6 percent of an organization’s total annual revenues are lost due to fraud and abuse by employees.
The typical perpetrator is a college-educated white male.
The most costly losses occur in organizations with less than 100 employees.
The two day Finding and Investigating Fraud seminar helped fulfill continuing education requirements for local certified fraud examiners, who are required to log at least 20 hours of training annually, according to Lori Tellier, president of ACFE’s Rhode Island chapter. The organization certifies fraud examiners through a test, which is similar to the one administered to people hoping to become certified public accountants, explained Tellier, who has an accounting background and works for the Rhode Island State Police public corruption and white collar crime unit helping detectives investigate fraud.
Baker Technologies Inc. does a variety of work, including recently helping one Texas bank do a security check to make sure its procedures provide adequate ways to deter and also uncover fraud. The firm also does work for some Texas school district officials, which has in the past involved a contractor who falsely billed the local government for roof repairs, he said. The contractor would bill the school district, even though no work crews had ever been seen on site.
Small business owners tend to be particularly vulnerable to employee fraud, Baker added.
“They’re more vulnerable because they tend to be more trusting,” he explained. “Also there’s less separation of duties among employees (in small companies).
“A little bit of fraud with a small company can cause it to go under,” he said.
Small business owners should “rely heavily on their CPAs” for guidance on looking out for fraud, Baker said. But if the CPA doesn’t have extensive knowledge of fraud prevention techniques, he added that business people can turn to the ACFE for information and referrals.
Some police departments have fraud examiners who can help businesses that are victimized. But, Baker added, the police might be limited in how much investigating they can do. In such cases, business owners might want to turn to a fraud investigator to further research the situation.
“It is critical they do investigate to determine the full extent of the fraud,” Baker advised. Because a fraud scheme could have unexpected impacts, which are not found by a police investigation, he explained.
A second piece of advice Baker offered for small business owners is to dismiss employees who are caught stealing. “You need to send them packing at a minimum. It’s okay if they want to prosecute them too,” he said.
By simply “forgiving” an employee’s dishonesty, an employer can leave other businesses in the community vulnerable to similar problems. “They (the employee) can just walk down the street and get a job somewhere else. That leaves the community vulnerable too.”