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8/1
2012

Exposing Some Misconceptions About Security Technology

While it’s tempting to become impressed with state-of-the-art asset protection technology, it can prove costly to be lulled into a false sense of security. With internal theft and cargo crime spiking, the last thing that any company can afford is to be blindsided by a six or seven figure loss. However, that’s exactly what’s been happening to companies throughout the country that have placed too much confidence in the security technology they’ve acquired.

Security technology can certainly be beneficial, however there are also weaknesses in these systems that are being exploited by dishonest employees. Here are some examples:

CCTV – Although some overzealous sales people would like you to believe that the existence of a few dozen cameras throughout your facility will virtually guarantee a theft-free environment, this is simply not true. In fact, more than 90% of the companies contacting us to investigate significant theft-related loss already have video systems in place. If closed circuit television effectively deterred dishonesty, these companies wouldn’t be missing large quantities of their inventory.

Why doesn’t CCTV prevent or expose insider theft? One of the primary reasons is that fraud and collusion look exactly like standard operating procedure. There are no bells or whistles going off when employees steal product through the shipping, receiving, customer pick-up, transfer or return functions – and these are the areas where large scale theft regularly occurs in the typical distribution center.

Another reason why video systems oftentimes fail to protect companies from theft is because few executives have the time, patience or inclination to watch live or archived activity. Unfortunately, dishonest workers are well aware of this fact. In this respect, a video system is no different than a piece of exercise equipment. Simply purchasing it won’t provide any benefit. Unless it’s regularly used, it provides little or no return on your investment.

RFID – A recent DC Velocity article referenced a survey of companies using radio frequency identification systems, where nearly half of the respondents had problems, such as signal disruptions, integration issues and unit failure.

Beyond the technical glitches, it’s important to keep in mind that RFID was never intended to protect against internal theft. Designed as an operational tracking tool, it is not immune from manipulation by employees who have access to the devices. Dishonest workers intent on concealing their theft activity can defeat RFID tags and readers a number of ways, at which point the tracking capability is completely neutralized.

Bar code scanning– The forerunner of RFID is still used by many companies today. Like RFID, it provides many operational benefits. However, it won’t stop internal theft.

If, for example, a devious selector or loader wants to place four extra cases of inventory onto the truck of a driver he’s working in collusion with, he simply won’t scan the extra boxes. It’s that simple.

A similar scenario can also take place in the receiving function. We’ve caught receivers who were paid thousands of dollars from dishonest drivers because they allowed the truckers to keep a percentage of the product they were supposed to deliver. The receivers concealed their theft by scanning the same cases multiple times, which was possible because many manufacturers don’t assign personalized bar codes for the same SKU’s.

GPS– Many companies initially invested in global positioning satellite technology when it was introduced because they thought they would be able to put a stop to trucker theft. Although GPS has been effective at exposing drivers who extend their breaks, it has been repeatedly defeated by dishonest drivers selling product off their trucks.

Dishonest drivers can have their trucks overloaded with product by warehouse personnel working in unison with them, thereby creating extra inventory that can be subsequently sold for cash.

Drivers can also prey on customers that don’t carefully check in their shipments and deliberately short them on their deliveries, which results in extra cases that could then be illegally sold.

In order to avoid detection via GPS tracking when they illegally transact the product for cash, dishonest drivers will meet their accomplices and offload the stolen product during their authorized break periods at diners or rest stops, rather than going off route. In other cases, drivers will stay under the radar by selling the hot goods in proximity of their authorized delivery locations, claiming they were waiting for an available door to make their delivery. Consequently, drivers looking to profit at their employer’s expense are not intimated by having GPS in their vehicles.

Technology can add significant value to a loss prevention program. However, it’s not a cure-all. Carefully selecting and integrating the right technology with Best Security Practices, has provento be the most effective way to protect against internal theft.

Posted in: Blue Collar Crime, Home, Supply Chain Security

7/1
2012

Why Some Security Programs Don’t Protect Against Internal Theft

Danbee is frequently called upon to investigate white and blue collar crime by executives who wrongfully assumed that their companies were well protected. All too often, our investigations reveal that while may of these firms have allocated resources to protecting their assets, when tested; their safeguards did little to prevent them from being victimized.

In a large percentage of these cases, the companies that have incurred six or seven figure losses were guilty of making one or both of these two costly mistakes:

Being reactive rather than proactive

While some firms have learned that prevention is far less costly than apprehension, there are still many companies that haven’t gotten the message.

An example of this involved one distributor that experienced an ongoing drop in gross profit and an increase in inventory shrinkage. They had historically evaluated the success of their security program by how many individuals they caught stealing and arrested each year. However, despite the fact that they had apprehended a number of employees, their inventory shortages became worse over time.

What they failed to understand was that they were not plugging up the holes that allowed the theft to take place, i.e., not addressing the root cause of the problem. Consequently, new employees soon learned how easy it was to exploit the company’s controls. For every dishonest worker they terminated for theft, they were being replaced by new employees who learned that the risk of being caught stealing inventory was extremely low.

However, once this distributor began focusing on preventing theft, their losses dramatically declined and their bottom line improved. They learned to judge the effectiveness of their security program by how many employees remained honest, not by the number who was apprehended in the act of theft.

Becoming complacent

If you haven’t objectively evaluated your security and looked for ways to improve your loss prevention controls, there’s a high probability that your safeguards could be exploited.

All too often, companies mistake being lucky with having effective safeguards in place, only to find out how vulnerable they really were after their controls were compromised.

Prior to 09/11, there were many who attributed the absence of domestic terrorism to the effectiveness of U.S. airport security measures. As we painfully learned, many of those alleged safeguards were far more cosmetic than meaningful, and relatively easy for the terrorists to circumvent.

One way to avoid having a false sense of security is to have your physical, procedural, and electronic safeguards periodically audited and tested. While the results may be disturbing, you’re better off finding out where the weaknesses in your security program are before others have the opportunity to exploit them.

Posted in: Blue Collar Crime, Home

6/1
2012

The Biggest Myths about Business Crime

1. Myth: “Crime doesn’t pay”

Realty: Criminal activity is a multi-billion dollar problem today for American companies, with very few of the perpetrators being apprehended. Those who are caught oftentimes receive light criminal sentences. Consequently, dishonest employees and professional thieves find business crime extremely lucrative.

2. Myth: “Our security must be good because we’ve never had a major loss”

Realty: Many companies that never incurred a prior loss were subsequently victimized for six and even seven figures. Never confuse being lucky with being invulnerable. At some point, your luck may run out.

3. Myth: “My alarm company will know how to properly design a security system that will protect our inventory”

Realty: Some sales representatives sell what they want you to buy, not what you need. There is a significant difference between these two perspectives. Additionally, most salespeople are unfamiliar with the sophisticated methods used by professionals to circumvent state of the art security systems today.

4. Myth: “If any components in our alarm system weren’t working properly we would know it when we tried to arm it.”

Realty: There are several reasons why your intrusion detection system may not report that it is not functioning properly. These systems require periodic inspection and testing to insure that all the components are working properly.

5. Myth: “If we do sustain a loss due to a faulty intrusion detection system, the alarm company will be held responsible”

Realty: Almost all contracts have waivers of liability that protect the security system vendors. Read the fine print in your contract and you will probably find this type of language.

6. Myth: “It’s a good idea to integrate your electronic access cards into your alarm system”

Realty: While it may offer convenience, if an employee loses their card and fails to promptly report it, anyone finding that can bypass all your electronic protection and have uncontrolled access to your building.

7. Myth: “My camera system will keep my employees perpetually honest”

Realty: After the novelty of a new video system wears off, typically within the first few months, employees generally become aware that management doesn’t have the time or patience to spend hours each week viewing live or recorded activity.

Posted in: Blue Collar Crime, Home, White Collar Crime

5/1
2012

Why Companies Can Be Easy Targets for Fraud

In order for companies to effectively safeguard their assets, it’s beneficial to understand the critical mistakes made by corporations that have been victimized. After 30 years of performing white collar crime investigations, we’ve become all too familiar with the most common pitfalls that typically accompany fraud.

1. A Lack of Awareness

Most executives prefer to believe that their management team would never embezzle funds, take kickbacks or sell highly confidential or proprietary information to competitors. Understandably, it’s disconcerting to even consider the possibility that one of their trusted executives would be willing to commit a crime.

However, as we’ve all learned, white collar crime does occur, and can have devastating financial and legal consequences. Additionally, it’s commonplace to find that the perpetrators are long-term, highly trusted individuals.

2. An Over-Reliance on Accountants to Uncover Fraud

Many CEO’s feel that their companies are protected from fraud because they wrongfully assume that their accountants will detect most forms of white collar crime. Unfortunately, this is a dangerous assumption to make and one that has proven extremely costly for many companies.

Accountants are typically concerned about making sure that tax obligations are met, financial reports are prepared on time, and bottom line numbers are balanced. If the corporate criminal is devious and subtle in their endeavors, the odds of an accountant uncovering the theft are quite remote.

In one investigation, we found that the CFO had been fraudulently billing his employer over $180,000 a year. He incorporated a “dummy” company, printed invoices, rented a mailing address, then forwarded and approved the bills when they arrived each month. This went on for eight years before anyone suspected a problem, and it was not detected by accounting personnel.

Had the CFO done something blatant, like diverting company funds to his personal account or writing checks to his own name, I’m sure the accountants would have noticed it. However, when fraud is committed within the system, it tends to look exactly like standard operating practices and won’t typically be red flagged.

3. Inadequate Policies and Procedures

Most companies that incur fraud-related loss don’t do enough to deter it from happening in the first place. It’s important to remember that a good percentage of employees become dishonest after being exposed to the loopholes and opportunities that exist in their respective companies. This blatant opportunity, combined with the temptation of pocketing a good deal of [tax free] money, oftentimes causes marginally honest employees to become company thieves.

From the standpoint of preventing employees from going bad, as well as having legal remedies available after a crime is uncovered, it’s prudent to adopt formal company policies and procedures regarding:

• Employee integrity and ethics.

• Soliciting or receiving gifts, gratuities or incentives.

• The proper safeguarding of proprietary information.

• Working for a competitor while employed

4. Failing to Perform Comprehensive Background Investigations

One investigation that illustrates the importance of conducting comprehensive background investigations involved a purchasing executive who was shaking down vendors and receiving upwards of $300,000 a year in cash and gifts. We caught him by setting up a sting operation, where one of our investigators posed as a vendor and documented the purchasing executive asking for an 8% kickback on each order he placed.

When we confronted him with our evidence, the executive confessed. During the interrogation, the purchasing agent admitted to falsifying his résumé and omitting several facts, including a previous employer that had terminated him for taking kickbacks. The executive also admitted that he owed over $40,000 in credit card debt and had declared personal bankruptcy just two years before accepting his current position.

All factors considered, this was certainly not the type of individual you’d want in a responsible position. However, none of these facts ever came to light prior to him being caught because the company neglected to conduct a comprehensive background investigation. If they did, they would have uncovered some, if not all, of these relevant facts and certainly would not have hired him.

Playing fast and loose with the information contained on résumés is not unusual. We find that between 12% – 15% of the white collar candidates we perform background investigations on have deliberately falsified or deleted critical information from their resumes.

5. Lack of an Effective Way for Employees to Report Illegal Activity

When it comes to uncovering internal theft, this is perhaps one of the most effective, yet overlooked solutions available to corporations today.

Have you ever wondered why law enforcement agencies almost always set up a confidential 800 number after a serious crime has been committed? Because a high percentage of cases are successfully concluded after confidential tips are phoned in by informed sources.

The same holds true for the private sector. Our 800 Hotline number for example, has received calls regarding dozens of cases of white collar crime, that otherwise would not have been detected for months or even years. In fact, some of our clients, after being notified about a fraud, instinctively reacted with shock and disbelief. Only after checking out the information did they come to the painful realization that the caller’s tips were right on the money.

The reason an employee tipline is so effective is because it’s almost impossible to keep illegal activity a secret from co-workers. There are always others who know, or at least have good reason to suspect, that another employee is committing a fraud. The problem arises when the employees who possess this information fail to come forward because of an inherent fear of being exposed and having the culprits seek revenge.

That’s why a successful tipline program will offer callers anonymity, therefore guaranteeing them that their identities will never be revealed. Additionally, callers should be able to speak with experienced security professionals, not switchboard operators, who will know how to fully debrief them, i.e., asking all the right questions, as well as developing a rapport, so callers feel comfortable providing the information.

One caveat however: no one should ever be punished or rewarded based solely on a call. The information should be corroborated before any action is taken, so no one could use the tipline as a means to perform a character assassination on a co-worker they dislike.

Posted in: Cybercrime, Embezzlement, Fraud, Home, White Collar Crime

4/1
2012

Finding Cost Effective Solutions in a Tough Economy: It’s Time to Think Outside the Proverbial Box

It’s no secret that the warehousing and transportation industry has been hit hard with rising costs and shrinking profit margins. With experts projecting an extended economic recovery, logistics executives are struggling with some difficult financial decisions.

The knee jerk reaction of some when it comes to asset protection has been to arbitrarily cut spending. However, many companies have learned a painful lesson, which is this: in tough economic times, security risks can be significantly higher than in normal times.

Because employees are now faced with the harsh realities of wage freezes, overtime elimination, benefit reductions, and possible job cuts, a percentage adopt the mindset that puts them in an adversarial position with their companies. When faced with rising personal expenses and reduced income, many look for an alternative means of financial support.

Employees can become resentful and sometimes even vindictive as they perceive management’s cost cutting initiatives not as a financial necessity, but as a personal attack. A percentage of the workforce may then adopt the mindset of “I’m going to do it to them before they do it to me.” Consequently, many companies have experienced an increase in both the number of security related problems they’ve incurred as well as an escalation in inventory theft.

One distributor that recently contacted us had experienced their highest single spike in inventory shrinkage in the last 15 years. Another company was recently victimized for over $240,000 in theft related losses by a group of long term employees who admitted they had never resorted to dishonesty prior to the last six months.

What oftentimes enables these types of crimes to take place are the reductions that some companies have made to their loss prevention programs, which have created new opportunities for individual theft, fraud and collusion, not to mention product tampering and sabotage.

Many senior executives have asked me the best way to balance the pressures of making needed cost reductions and the increased risk of security threats that many companies find themselves facing. My response to this question is to search for innovative ways to reduce their security expenditures without increasing their exposure to security threats.

One illustration of how this can be accomplished involves a company that has eight locations and one new facility on the drawing board. After carefully analyzing their security expenditures, we questioned why they intended to spend the sum they budgeted for the proposed video system in their new distribution system.

The cost for the CCTV system was, in our opinion, approximately $32,000 more than we thought it needed to be. As it turned out, this cost factor was being driven by their desire for pan/tilt/zoom (P/T/Z) cameras. When we questioned why they thought they needed them, rather than using fixed position cameras, it became apparent that there was not a well thought out reason for their selection. Essentially they were going in this direction because that’s what they had in their existing facilities.

We pointed out the inadequacies of using Pan/Tilt/Zoom cameras in their type of operating logistics. After listening to our rational, they agreed with our logic. We also explained that fixed cameras were not only a fraction of the cost, but how they would actually provide them with a higher level of security. Avoiding P/T/Z cameras would also save them money on repairs, being that fixed cameras have fewer moving parts and require far less service.

By utilizing the cameras we recommended, as well as substituting the type of digital video recorders their vendor had proposed with a model that we knew was of equal quality (but without some bells and whistles that we considered unnecessary), we were able to cut their capital investment by more than 52%.

Another illustration involved a company that was spending in excess of $2.8 million dollars a year in guard service for their facilities in North America. After a study of their operating logistics and visiting several of their sites, we explained that all their facilities could be effectively protected and monitored from one central location if they utilized the right technology and security practices. The savings, even with the investment needed for the new technology, will exceed $1 million in the first year alone.

In a difficult economy, necessity does demand innovation. Rather than arbitrarily cutting budgets with a broad ax, which can end up costing far more, savvy executives have learned that there are oftentimes ways to strategically reduce expense without increasing risk.

Posted in: Blue Collar Crime, Home, Uncategorized, White Collar Crime

3/12
2012

Anatomy of a Theft: How $182,000 of Inventory Disappeared

Here’s an actual case history that resulted in a distributor losing over $180,000 of inventory. The methodology was simple, yet effective. By taking advantage of this company’s rapid growth and lax security controls (both of which created opportunity), a devious checker disproved the old axiom that crime doesn’t pay. Reality check: crime pays quite well, which is why it occurs so frequently.

OVERVIEW:

This distributor’s trucks would be loaded during the night shift. In the morning, company drivers would make their deliveries.

When this company shipped product, labels would be applied to the outside of each case picked. Management felt comfortable that extra cases being placed onto trucks would be noticed because they would not have an affixed label. In actuality, it wasn’t difficult to circumvent the system.

By printing duplicate labels, (if questioned, the checker would claim that some of the original labels did not print well, were damaged, or lost) he was able to have extra, unmanifested boxes placed onto the trucks of the drivers he was working in collusion with. These truckers were able to sell the overloaded product at a steep discount and still make a handsome profit. In no time, the three employees were pocketing more than $10,000 a month in cash.

Management had no idea that they were losing this quantity of product until they took an inventory. The Director of Distribution initially balked at the possibility of theft. However, when the results of the next inventory indicated even more shrinkage, he realized that he could no longer remain in denial.

WHY THIS COMPANY WAS EASILY VICTIMIZED

(1) Although this company had purchased an expensive video system, the dishonest employees knew that no one ever watched the monitors or viewed recorded activity. Additionally, the cameras were not positioned strategically, nor was the right equipment purchased. The bottom line was that the video system didn’t prevent, or even slow down, the ongoing theft activity.

(2) The company failed to provide a risk-free way for employees to report confidential tips. Management assumed that their “open door policy” would be sufficient for workers to report illegal activity.

It was later determined that other workers knew that this checker was stealing, but kept this information to themselves. They were concerned about their identities being leaked if they confided in company executives. Only after the dishonest workers were apprehended did the employees come forward and reveal what they had known all along. If this company had an outsourced 800 tip-line that offered employees complete anonymity, the employees said they would have reported the dishonest checker.

(3) The company did not have an effective security auditing program that prevented and detected shipping dock collusion. Had they maintained periodic monitoring of their drivers and checkers via unannounced security audits, the thieves would have probably been exposed long before the thefts mushroomed into a six figure loss.

Posted in: Blue Collar Crime, Fraud, Home, Supply Chain Security

12/2
2011

4 Strategies for an Effective Employee Hotline Program

Honest employees, who don’t want to work alongside thieves, substance abusers and other unsavory types, will oftentimes not come forward because they’re fearful about getting dragged into a potentially uncomfortable or even dangerous situation.

This fear factor is not completely unfounded. In fact, there is an actual term for it: “whistleblower syndrome”. There have been hundreds of cases of employees receiving threats, having their property damaged and even being assaulted after informing management about a dishonest coworker.

However, companies cannot afford to be naive and unaware about illegal and unethical activity taking place. White and blue collar employees who commit fraud, embezzlement or inventory theft, as well as harassment or discrimination can easily cost their companies six and even seven figures.

Workplace substance abuse can be equally costly. One distributor was sued for over two million dollars after a worker who tested positive for cocaine caused a serious injury to a coworker with a forklift. Prior to trial, statements were taken from an array of employees who testified that drugs were widely used and sold inside the distribution center. Fearful of the consequences, the distributor agreed to a significant settlement with the injured worker rather than go to court.

Confronted with these realities, it’s imperative that management open up a line of communication with their workforce. To be effective however, this communication line must make the employees feel safe and secure. Otherwise, it will not be nearly as effective as it needs to be.

Following these 4 guidelines will dramatically increase the success of your hotline program:

Offer Callers Total Anonymity, Not Just Confidentiality. The difference is that offering confidentiality means callers have to trust that you won’t reveal their identity. However, if you provide anonymity, i.e., you never require callers to provide their names, you’re giving them the security that they want and therefore increasing the odds of getting them to tell you what they know.
Outsource. It’s a proven fact that employees feel far more comfortable speaking with someone who won’t recognize their voice, speech pattern or accent. Additionally, callers prefer to speak with experienced professionals who routinely deal with these types of security related problems.
Promote It Positively and Consistently. You can avoid the “Big Brother” syndrome if you carefully word your posters and handout materials so they emphasize the benefits (which are many) of working in a theft-free, drug-free environment.
Talk About the Program As Often As Possible. During new employee orientations and communication meetings take some time to explain how the program operates. The more employees understand how the program works, the more likely they’ll be to use it when they become aware of illegal or unethical activity.

Posted in: Blue Collar Crime, Home, White Collar Crime

11/3
2011

Is Your Company at Risk to Cybercrime?

Cybercrime can literally be launched from any place on the globe. Unauthorized entries into corporate servers and networks can result in fraud, the theft of proprietary information, the misappropriation of company funds, as well as highly destructive and costly sabotage.

There are generally three categories of those who illicitly seek to penetrate corporate computer systems.

One group, which has grown significantly, is motivated by political or philosophical beliefs. They have vendettas against certain corporations or industries. You’ve seen groups such as these staging protests at national and international economic summits. Taking their beliefs to an extreme justifies their efforts to sabotage networks and data communications.

Another group of hackers, sometimes referred to as “script kiddies”, are predominantly driven by mischief. Hacking into servers and websites, and then defacing them, is in essence cyber-vandalism. To many, it has become a game of matching wits – theirs against corporate or government IT experts who are entrusted with protecting networks.

A third category of attackers is driven by greed, and in certain respects can be the most dangerous form of hacker. In many cases, they are highly sophisticated, well financed and have successfully stolen classified data from government, organizational and corporate websites and networks. In fact, there are international crime organizations specializing in cybercrime as well as solo “cyber guns-for-hire” who will attempt to penetrate a corporation’s network for the right price.

With the downturn in the economy, company employees have become another area of risk. One investigation involved a company executive who became vindictive as he witnessed the value of his stock options plummet. As a personal vendetta directed at senior management, he accessed highly confidential files, including customer lists and marketing plans, and sent them to a competitor.

Experts fear that for every cyber related fraud, theft and embezzlement that is uncovered, there could be as many as 80-100 crimes that go completely undetected.

Assessing Your Risk

Here’s a basic diagnostic self-evaluation that can help you evaluate just how vulnerable your server, network, proprietary data and internal communications may be:

Do you, at least once per month, verify that your data is actually being backed up the way you think it is?
Are passwords used by your employees a minimum number of characters and numbers (or are they relatively easy to crack because they consist of nicknames, birthdays, etc.)?
Are employees automatically required to change their passwords at least three times per year?
Does your company regularly update your operating system and software packages with the most up-to-date patches?
In the last 12 months, have you had experts perform a penetration test where they attempt to deliberately circumvent your firewalls and hack into your servers?
Is all company e-mail encrypted?
Does your company utilize effective intrusion detection products that will help detect, identify and stop unauthorized access?
Have you analyzed your network architecture to identify vulnerable points of entry for viruses?
Is your server in a highly secured room, protected by controlled access electronics, alarms (intrusion and temperature) and video equipment? If so, are the security clearances periodically reviewed to determine whether modifications are needed?
Do you have the ability to uncover employees sending damaging information from your company’s e-mail systems?
Does your company’s disaster recovery plan incorporate storing backed up data at an off-site location and making contingency plans for employees to work elsewhere if they can’t get to company offices?
Are employees given orientation and training regarding protecting company networks and following established security policies?
Are comprehensive background investigations performed on candidates and employees who will have access to classified data?
Are there follow-up background investigations conducted when employees are transferred or promoted into high security positions?
Is there a confidential 800 number available and effectively promoted for employees to anonymously call if they suspect or know of illegal or unauthorized activity by a co-worker, vendor or contractor?

If you haven’t answered yes to at least ten of these questions, your company may well be an easy victim, and it’s probably time to take action.

Help determine your risk factor by taking this confidential assessment — only you will be able to view the results. https://danbeeinvestigations.com/fraud-risk-assessment

Posted in: Cybercrime, Home, White Collar Crime

10/1
2011

Corporate Fraud Still a Significent Problem

In one confidential survey, nearly 25% of the companies responding revealed that they had been victimized by some type of fraud within the last 12 months. Thefts of intellectual property are on the rise as well. An estimate from one study puts that loss alone at more than $60 billion.

The old axiom that crime doesn’t pay has been repeatedly proven wrong. The truth of the matter is that crime does pay, and it pays quite well. To add insult to injury, the culprits oftentimes don’t pay any taxes like legitimate wage earners.

Theft of proprietary information, embezzlement, the misappropriation of company funds and vendor kickbacks are only some of the ways that white-collar criminals strike today.

It’s always difficult for top management to accept the idea that a high level colleague could be bilking their company. While it’s understandably difficult to face this reality, executives who go through denial oftentimes pay a high price for not at least considering the possibility that there could be a problem and looking into it.

Many CEO’s assume that their firms are protected from fraud because their financial professionals will uncover any type of impropriety. This however, is typically not the case. Accountants and auditors can only examine so much quantitative data. Additionally, financial experts are usually kept busy making sure that tax obligations are met, reports are prepared on time and bottom line numbers are balanced. If the white-collar criminal camouflages the fraud so it appears to be standard operating procedure, the chances of being caught are not very good.

This is best illustrated by one individual who had defrauded his company out of several hundred thousand dollars via a simple, yet effective scheme.

In his position, he had responsibility for approving invoices from an array of vendors for various goods and services. Once an invoice left his desk with his initials, it was processed for payment. His first step in the fraud was to set up a “shell,” i.e., a nonfunctioning company whose sole purpose was to be used for the scam. Next, he rented a mailing address in another city and established a local telephone number that forwarded calls to an answering machine at his home. The next step was to print up legitimate looking company invoices and envelopes.

He began forwarding invoices to his company for nonexistent financial and insurance consulting services. Initially, he treaded lightly, keeping the invoices relatively modest. However, after seeing that no one questioned the bills, he began increasing the amounts and sending them with greater frequency. Within 3 months, he was defrauding his firm out of more than $5,000 a week. This went on for more than two years before anyone even remotely suspected a problem.

Unfortunately, the opportunity to score big creates a great deal of temptation. These crimes occur more frequently than most realize. However, make no mistake. Companies are being victimized with alarming frequency and experts expect the problem to get worse.

Avoid this Critical Mistake if You Suspect Fraud in Your Company

Never confront a suspect unless you have strong evidence that they’ve committed the crime. Although the first inclination on the part of some CEO’s and CFO’s is to speak one on one with the co-worker, this is definitely not a good idea.

One senior vice president admitted that one of the biggest mistakes he ever made was to think that he’d elicit a remorseful confession from a purchasing executive by giving him the opportunity to cleanse his soul. After explaining why he suspected that the executive was guilty of accepting kickbacks, the senior vice president was shocked when the co-worker vehemently denied any wrongdoing. While the senior vice president had strong circumstantial evidence, he had not conducted a proper investigation and his facts were not complete or conclusive. The purchasing manager’s aggressive response forced the senior vice president to back pedal.

The company was subsequently unable to take decisive action because the senior vice president had decided to short cut the investigative process and prematurely confront the suspect. To make matters worse, the purchasing executive was then able to destroy evidence of his wrongdoing once he learned he was under suspicion.

When there are indications of fraud, conduct a thorough investigation. The objective is to develop enough factual evidence so that an unbiased determination can be made as to whether there was unethical and/or illegal conduct. Always keep in mind that the burden of proof is on the company to show guilt, not on an employee to prove their innocence.

Posted in: Home, Uncategorized, White Collar Crime

9/1
2011

Safeguarding Your Company from Workplace Violence

An ABC news article quoted Dr. Paul Ragan, senior consulting psychiatrist at Vanderbilt University Medical Center’s department of psychiatry, who stated, “Suicides and violence can increase in economic hard times. If anybody talks about an experience where they’ve been humiliated and they have feelings about it, it needs to be taken seriously. The workplace is often a source of disappointment, and is the unfortunate recipient of the person’s rage.”

While there’s no way to guarantee that your company will be 100% safe, there are several measures that can dramatically reduce your risk factor:

1. Educate your managers and supervisors: There’s no substitute for realistic, hands-on training. It’s important that you teach your key people how to recognize and respond to the early warning signals of trouble that normally precede an act of violence.

Training should also include role-playing scenarios where managers and supervisors are given the opportunity to temporarily put themselves into the mindset of the participants.

2. Conduct comprehensive background investigations on new hires: Companies should require new workers to undergo a background investigation. Looking into an individual’s history can uncover convictions for assault, manslaughter, rape or homicide. Equally important would be criminal convictions for carrying an unlicensed firearm.

3. Perform pre-employment and probable cause drug testing: As mentioned earlier, workers predisposed to acts of violence can be pushed over the edge if they use drugs or alcohol at work. Train your managers to look for physiological symptoms or impaired work performance.

Additionally, be attentive to the actions of parties involved in an argument after the encounter appears to have subsided. If one of the participants has a few drinks or uses drugs during lunch, they may return to work seeking revenge.

One of our clients nearly lost an employee when another worker returned from break under the influence of alcohol. The two workers had been arguing. However, the shift supervisor thought he had put an end to it after separating and verbally warning both employees. While at a local restaurant during lunch break, one of the participants worked himself into a frenzy while consuming several drinks and discussing his earlier confrontation with the co-worker.

He returned to work and attacked the other employee from behind with a hunting knife, repeatedly stabbing him. The injuries put the employee into intensive care for weeks and nearly cost him his life.

4. Set up an effective Hotline program: Offering your work force a means to communicate potential problems can be an invaluable tool. However, it’s only going to work if your employees feel completely comfortable using it.

It’s unrealistic to expect concerned employees to use the company “open-door” policy to report a co-worker who has, for example, a semiautomatic handgun in his locker or car. The average worker will be justifiably concerned that their tip will be leaked and find its way to the perpetrator, who will then seek revenge on him or her.

However, if employees have a safe, risk-free option available, many will take advantage of it.

5. Establish formal procedures for reporting incidents: Make certain that your managers and supervisors understand the importance of communicating a potential problem. All too often, key personnel will witness a dispute where one or several parties make threats. However, because no altercation occurred at that moment, the incident is downplayed and dismissed. A supervisor may wrongfully assume that he permanently diffused the hostility.

This is a mistake, because in many of these cases, there is a delayed reaction and serious injuries are subsequently sustained by one or more of the participants. If a provoked or drug-induced employee subsequently attacks a co-worker hours, days or even weeks after an initial incident, the company may be found liable.

Threats should never be taken lightly. Formal company guidelines should be established that require any form of threat to be documented and reported to the human resources, legal and/or loss prevention departments.

6. Establish proper procedures: Examples include:

• After a worker has been terminated, especially if the separation takes place under less than amicable circumstances, formal notification should be immediately given to those who oversee access to the building or grounds, such as uniformed guards, receptionists and shift managers.

• Electronic access cards, as well as IT network passwords and alarm codes should be promptly voided. Emergency call lists should be modified to reflect the change of employment status.

If exterior door keys are not electronic and cannot be voided via PC, or if the keys are the type that could be easily duplicated, the locks should be immediately changed.

Preferably, these steps should be implemented within minutes of the individual’s departure. In many cases where a serious injury has been inflicted or a death has occurred, companies failed to complete these tasks in a timely manner and allowed an unnecessary window of opportunity to exist.

• Eliminate uncontrolled entrances to the building.

In many facilities, anyone can enter the reception area or interior door(s) leading to company offices. To control access, an electronic strike should be installed on either the exterior or interior door(s) [depending on traffic flow and building layout].

It’s a good idea to equip the receptionist or warehouse office with a concealed, silent panic button (similar to what bank tellers have at their work stations) for summoning immediate assistance in the event of a life threatening situation.

In a distribution environment, it’s commonplace to find metal entrance doors without windows used by employees, truckers or service personnel. Workers become accustomed to opening a locked door whenever someone knocks or rings a bell, claiming to be an employee who may have forgotten their access card, or a contractor having legitimate business there.

One distributor lost hundreds of thousands of dollars of inventory and had several employees pistol whipped when an employee allowed access to intruders claiming to be a late arriving truck driver. After opening the entrance door to the warehouse one evening, the crew was held at gun point while the intruders loaded a tractor trailer with inventory.

Install a closed circuit television camera and intercom outside warehouse entrance doors so proper verification can be made prior to opening the door. Also, implement a formal policy that controls access times and establishes proper means for outsiders to validate themselves with proper identification.

• Equip supervisory and uniformed security personnel who normally roam throughout the warehouse with wireless panic buttons as well as radio units, so they can instantly communicate with each other as well as the alarm company central station in the event of a serious threat.

• Make certain that employee parking areas are well lighted. In high crime areas, lots should be fenced and there should be emergency call stations strategically located where employees park their vehicles. During nighttime hours, or if an employee has reason to believe they may be the target of a violent act, provide an escort to the employee’s vehicle.

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