By Jean R. Patterson, CPA, CFEIn 2010, I worked on a case for a Midwestern company that had suffered an employee theft to the tune of $170,000.
For the most part, it was a routine case: suspicion, initial evidence-gathering, law enforcement involvement, interviews, investigation and resolution. Part of my role was to determine where in the general ledger “Susan”, the accounting manager and perpetrator, had posted the other side of the misappropriations. I was developing the company’s theft-loss insurance claim and establishing the restitution we hoped a judge would order the defendant to pay. To do this, I sat at Susan’s desk and examined the PC she had used before her termination. The PC’s hard drive had already been copied and taken off-site, so I was able to examine files without damaging or changing evidence.
The open configuration of the office made it easy to hear how other employees reacted to their former colleague’s theft. It was by hearing their reaction that I realized – perhaps for the first time – how deeply one employee’s theft can affect innocent co-workers. The other workers expressed an overwhelming sense of betrayal, as if Susan had stolen from them personally. I believed this phenomenon warranted more study.
With the company owner’s permission, I conducted an informal written survey of Susan’s fellow employees. The staff responses were revealing.
“She was constantly complaining,” one worker wrote. Another respondent wrote that Susan was “moody and rarely had anything positive to say.” A third staff member answered that Susan “seemed ready to bite your head off.”
Susan’s behavior may have had an intended result: Her stand-off manner ensured that co-workers did not spend much time at her desk. Her behavior was consistent with someone in search of some office privacy to commit fraud.
The theft caused uncertainty to permeate the company; some employees had worked for there for 20 years or longer. Would the company survive the financial hit? Would there be layoffs?
What struck me the most was how employees felt betrayed not just by Susan, but by company owners. The law requires employers in companies of all sizes to provide a safe environment. In fact, employers who fail to provide a safe workplace can be punished severely. Too often, however, employer negligence regarding accounting controls and verification systems are “non-covered” items.
Perhaps preventing fraud should carry the same ethical responsibility as preventing fires or other health-threatening events. I would argue that not having the appropriate systems in place contributes to the theft. In this case, the company not only failed to have the proper control systems in place, it paid for Susan’s accounting education.
Is it safe to assume that workplace systems and design can keep you from bodily harm? It most likely is. Can you assume that most business owners employ sufficient systems to safeguard the business from theft? Unless you are on the front lines of the accounting function, it is difficult to know.
While cash and property misappropriations can have a devastating effect on business owners, they are not the only victims.
Jean Patterson, CPA, CFE, is the managing principal of J Patterson Consulting LLC in Indianapolis. She has worked with business owners for more than 20 years and speaks to large and small groups about issues facing their businesses. Jean welcomes your questions and comments at firstname.lastname@example.org.