I have been advising business for 20 years and I can say with confidence that employee fraud occurs in over 90% of companies. Granted, the level of fraud varies but remarkably some company directors even tolerate it.
I will later describe different types of employee fraud, but first I want to describe to you what I call Director Psychosis.
If you google the definition of psychosis you get “a severe mental disorder in which thought and emotions are so impaired that contact is lost with external reality.” For the purpose of illustration and with regard to employee fraud, I have further analysed this psychosis into 3 states of mind, delusional state, schizophrenic state and the hallucinogenic state.
The Delusional Psychotic Director
I have come across numerous instances of this, with statements such as:
“Nicola (our bookkeeper) is with us for years, she is like one of the family. We trust her 100%.” This particular Nicola stole over 120,000 Euros from the company over a 2 year period. This had been missed by the companies previous accountant and I first time I suggested there might be fraud; I was nearly relieved of my services!!
“I have complete faith in the honesty of my staff, so I don’t need to upset them by putting arbitrary controls in place.”
I don’t need to explain to you how this story went…
The Schizophrenic Psychotic Director
“Things are too loose in the business and I’m afraid to know how much money I’m leaking, BUT, John probably deserves a little extra in his pocket anyway”
The reality here is John was fleecing the company. The little extra in his pocket was coming from cash sales, but the laissez-faire attitude meant John was happy to take stock home and request kick-backs from suppliers.
The Hallucinogenic Psychotic Director
The companies managed by these directors don’t tend to last too long or last forever making very little profit.
– “OK then, I’ll introduce you to the team, there an honest a bunch a you’ve ever met”
– “Mary is too important to the business to lose, so I’m happy to let it go”
– “I don’t mind expense fraud, as long as they don’t take the p#ss”
– “Look at my bank transactions; there is no fraud here sir”
– “Would you stop asking these stupid questions and close the accounts”
– My favourite “Do I look like someone who would let people steal from me??”
These directors tend to have numerous staff taking the #@>!! So this brings me on to some “Types of Employee Fraud”
Payment fraud is any fraud that involves falsely creating or diverting payments.
Payment fraud can include:
- Creating bogus customer records and bank accounts so that false payments can be generated
- Intercepting and altering payee details and amounts on cheques and Payable Orders, then attempting to cash them
- Creating false payment and financial information to support fraudulent claims for benefits
- Processing false claims by accomplices for benefits, grants or repayments
- Self authorising payments to oneself.
Procurement fraud is any fraud relating to a company purchasing goods, services or commissioning construction projects from third parties.
Fraud can happen when the tender process has not been followed so that fraud can be committed, or when there is bid rigging. It can also happen when there are payment claims for goods or services that were not delivered or were inferior to what was specified in the order.
Travel and subsistence fraud
Fraud relating to travel and subsistence happen when employees of a company claim for travel or subsistence expenses that are not owed.
Travel and subsistence fraud can include claims for journeys that were not made, false client entertainment claims, claims for amounts higher than that spent, forged signatures authorising payment and unauthorised amendments to timesheets. Also known as Accounting fraud.
Personnel management fraud
Personnel management fraud can include a number of different scenarios in the workplace. Examples of personnel management fraud include:
- Staff on sick leave but working elsewhere
- Abuses of flexible working time systems
- Misuse of official time, eg abusing a company’s computer misuse policy
- Deceit or misrepresentation for the employee’s advantage, eg false references or false qualifications used to secure employment.
Exploiting assets and information
This is when assets of an organisation are used for unofficial purposes. Fraud relating to exploiting assets and information can include those who supply information to outsiders for personal gain or gradually over time stealing a company’s stock or assets for own use.
Receipt fraud is often fraud committed by a company’s employees. It could happen when incoming cash or cheques are stolen, or when the records of the amounts owed by customers are adjusted in return for cash rewards or other incentives.
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