An Indiana bookkeeper has agreed to plead guilty to charges of stealing $1.8 million from her employer over more than four years,
Inc. magazine. The U.S. Department of Justice says Julie Ann Ashman wrote more than 400 checks to herself, in amounts between $3,000 and $5,000, from the accounts of her employer, a small, medical equipment repair company. Ashman then covered up the theft by understating the company's revenues in reports to its management and outside accountant. Moreover, she did not report the money as income in her federal income tax forms, leading her to face prosecution for tax evasion in addition to fraud charges.
This column has covered several frauds committed by apparently trusted, long-term employees (see
"Powered Down by Fraud" and
"The Tech Know-how for Fraud.") Particularly for smaller businesses, resource constraints can be an enormous challenge in establishing comprehensive controls, such as segregation of duties and management vigilance in monitoring cash flows, inventory, and check writing. The absence of these controls can provide opportunities for employees to commit fraud.
This time, though, let's discuss one of the root causes, or a major contributing factor, of employee theft: motivation. Specifically, internal auditors should consider whether the organization has a toxic work environment that could motivate an employee to commit fraud.
signs of a toxic work environment. Instances of employees stealing money, stealing or destroying assets, and taking information for personal gain are on the rise. As this story suggests, a common fraud scenario may involve employees who appear to be highly dedicated to their job by working continuously, with little or no holiday or sick days. Such "dedication" can be a sign of a cover up by a disaffected or disgruntled employee.
Although it is difficult to quantify, within a typical organization, there is likely to be a small minority of employees who wouldn't steal from their employer regardless of the circumstances, another small minority who will steal at any opportunity, and a majority who may go either way. Employees in this last group may be waiting to see how serious the employer is about theft and the risks, or they may be influenced to steal by a toxic work environment.
Examples of toxic behaviors by either management or employees include:
- Arbitrary management decision making, including disciplinary actions and being overly critical of others. Employees who perceive they have been wronged may use theft to get back at the business.
- Business processes and procedures that are perceived as overly burdensome, arbitrary, and not well-understood by employees.
- Harassment, bullying, and racism in all its forms.
- Excessive, hostile, and obsessive behaviors, such as employees who appear to live beyond their means. This could have been a way to uncover the fraud in this story.
- Failure to address immature or troubled employees. In addition to those mentioned previously, this might include employees with other problematic behaviors such as signs of substance abuse and chronic lying. Theft may result in an emotional release for anti-social behavior.
- Differential treatment, including pay and benefits for the same work. This may involve employee perception that management is receiving a disproportionate share of profits and benefits.
- The presence of 'in favor" and "out of favor" employees and groups.
Don't take employee honesty for granted. Employers — and auditors through their findings and recommendations — must demonstrate to employees that fraud prevention is important by setting an example. This can involve establishing a code of conduct for all staff members, encouraging communication, and promoting trust and fair treatment. Employers should reinforce these measures by implementing appropriate procedures and policies to ensure compliance. And, where they have uncovered fraud, organizations should take firm action to address the crime as a deterrent to future incidents.