Workplace fraud costs more than you realize

Fraud has a higher cost than most people realize. March is fraud prevention month in Canada and a good time to review the losses from, and reasons for, workplace fraud.
Fraud occurs when someone uses deceit, falsehood and/or any other fraudulent means to steal your money, your property or some other valuable. With technology and globalization, both the incidence and innovativeness of fraud has been growing. Some of the more common fraud includes requesting upfront fees for a product or service that doesn't get delivered, false billing, counterfeit cheques, writing cheques when there are insufficient funds and/or misrepresenting the financial activities of a company.
Not long ago, for instance, police uncovered a major mortgage fraud where people deliberately used false, misleading and fraudulent information to secure a mortgage. Last year saw an Alberta man plead guilty to selling counterfeit cancer drugs on the Internet. Car insurance schemes have also been discovered and of course, everyone is familiar with incidents of personal identity theft and falsifying a resumé.
Employee theft or occupational fraud, as it is also known, occurs when an individual fraudulently acquires company assets such as cash, supplies or equipment.

For instance, money orders and expense claims can be altered and/or padded, petty cash can simply disappear, multiple office supplies and various company products drift homeward and sick leave benefits are abused. Sales employees have been known to sell a product and keep the cash, sell products to clients who were not on the company sales records and/or direct payment into their own bank accounts.

Accountants who are dipping their fingers into the till, so to speak, have been known to divert or misappropriate money from office operations into their own bank account or issue cheques to fictitious cost centres or even to a ghost employee, while the money is actually directed into their own bank account. Others have been caught using company funds to pay for personal items such as a cellphone.

According to a recent study commissioned by the Association of Certified Fraud Examiners, approximately 39 per cent of fraud occurs in privately owned companies, while the public sector experiences 26 per cent of fraud. Smaller organizations with fewer than 100 employees accounted for almost 43 per cent of those experiencing fraud losses of $150,000. This translates into a five-per-cent loss for every $100 of sales.
According to the study, most fraud occurs as a result of three types of theft. Misappropriation or misuse of assets includes such schemes as skimming sales, payroll fraud, padding expenses or fraudulent billing. Pure corruption leads to bribes, illegal gratuities, conflict of interest or engaging in self-dealing transactions. In the third type, people will deliberately falsify financial statements, record fictitious sales or hide liabilities and expenses.

There are a number of interesting details about the perpetrators. For instance, employees steal more often than managers, but the loss from managerial theft is much larger. Theft by owners and/or business executives, as can be expected, is much larger. More men than women engage in occupational fraud and these individuals are typically found in sales, accounting departments and/or in upper management. Finally, those individuals involved in theft are typically longer term employees who know the internal systems well.

So, how is an incident of employee theft typically discovered? A 2008 Statistics Canada study, Fraud Against businesses in Canada: Results from a National Survey, indicates that most fraud comes to light through employee and/or customer tips rather than through the internal controls an organization has put in place. Interestingly enough, many instances of fraud are never even reported to police. The incidents may be considered too minor, the loss was recovered, and/or the resources required to pursue criminal charges may outweigh the losses. Still others indicate they didn't want to create negative publicity.
Those thefts reported to police and criminally prosecuted typically involved higher losses; however, when these steps were taken, at least 50 per cent of the perpetrators pled guilty.

It is unfortunate that employee theft takes place, but the real question is why do employees steal? According to U.S. fraud expert Terry Shulman, author of Biting the Hand that Feeds: the Employee Theft Epidemic, people who steal at work aren't really professional thieves or wholly dishonest, they often steal as a result of some type of disgruntlement, an addiction and/or compulsion. Still others justify theft because they feel they are jealous of an owner's lifestyle and success, they may feel they are a victim or they are angry and feel unappreciated.

This perception of people who steal was echoed by Det. Sgt. Sandra Martin, an officer in commercial crime with our local police force, who says that many people who steal feel a sense of entitlement. For instance, one individual her office had investigated had been denied a raise and subsequently started diverting company cash to her own bank account as her own form of compensation. As well, Martin suggests that most people who engage in theft believe they won't get caught if they steal money in small increments. Then, when an arrest does occur, they are shocked at how much money they have stolen.

At the same time, we know there are indeed employees who simply lack any sense of ethics and will steal from their employer without feelings of guilt or concern. These employees don't even think about having to justify their behaviour, they just steal. Unfortunately, as well, there are a growing number of employees who steal to feed an addiction such as alcohol or gambling and these are difficult situations to deal with.

What can be done about employee theft? While the first answer is often guidance toward improving internal controls, keep in mind that studies are showing that most fraud comes to light through employee and/or customer tips. This suggests to me that the best means of fraud prevention is to create a positive organizational culture where there are strong and trusting employee/employer relationships.

Source: Det. Sgt. Sandra Martin, City of Winnipeg Police Service; Fraud Against businesses in Canada: Results from a National survey, Andrea Taylor-Butts and Samuel Perreault, Statistics Canada, 2007/2008; Detecting Occupational Fraud in Canada: A Study of its Victims and Perpetrators, Association of Certified Fraud Examiners and Dr. Peltier-Rivest of Concordia University, Montreal

March is Fraud Prevention Month

The RCMP believes fraud in Canada is approaching the size and scope of the drug trade.

Research shows that fraud is the crime that affects the most Canadians, said the head of the RCMP's major fraud unit.

RCMP Insp. Kerry Petryshyn said mass marketing fraud alone accounts for nearly $10 billion in fraud losses every year.

"That's over a million victims," he said.

Total losses from the crime are actually $30 billion a year, police estimate.

"Which is pretty close to the drug industry here in Canada, however a lot more victims," he said.

Types of fraud include email fraud, spam and compromised credit cards.

March is fraud prevention month and the RCMP is taking part in a two-day conference in Ottawa called Preventing Fraud in the Digital Age.

This month RCMP wants Canadians to do more to protect themselves.

Petryshyn said that while the internet is a fertile place for fraud to occur, it's also a powerful tool to gather cautionary tales.

"If you query yourself the name or the information and the product you're buying, the company you're dealing with or whatever you have, chances are pretty good if someone's been ripped off they're written about it and you can see that and then use that information," he said.

Online banking hit by thieves

A new Trojan dubbed "OddJob" is stealing people's money by taking over their online banking sessions after they think they've logged off.

The Trojan, which targets Windows-based computers, is being used by criminals in Eastern Europe to steal money from accounts in the United States, Poland, and Denmark, Amit Klein, chief technology officer of Trusteer, writes in a blog post today.

Klein said in an e-mail that he could not identify the banks being targeted or provide an estimate on the number of victims.

"It is early days for this malware," he said. "It appears to be a work in progress, so we expect the code to become more sophisticated over time."

The Trojan intercepts communications that customers have with banking sites via Internet Explorer or Firefox, stealing or interjecting information and terminating user browser sessions when done, Trusteer said.

When a bank customer is on the bank site, the Trojan takes advantage of the session IT token to impersonate the customer, riding the coattails of the existing authenticated session. It then bypasses the logout request of the customer so that the session is not actually terminated when the customer thinks he or she is logging out.

To avoid triggering security software, the malware's configuration is not saved to disk, but a fresh copy is fetched from the command and control server each time a new browser session is opened.

Web surfers can protect themselves by installing software security updates, refraining from clicking on URLs in e-mail messages, and using software that secures Web access, like Trusteer's Rapport product, the company said.

Seven practical steps to avoid Idenity Fraud

1. Pick up your mail daily
The worst thing you can do is let important documents sit in an unlocked mailbox overnight, Mr. Levin says. If you’re planning to be away from home for an extended period, have Canada Post hold your mail or have a trusted neighbour collect it as it arrives.

2. Keep track of important documents
Write down every piece of information-rich mail you anticipate receiving and mark it off when it arrives. If important documents such as your tax-filing package or financial statements don’t arrive, contact the sender immediately. CRA spokesman Philippe Brideau said tax-filing packages have already been mailed and most Canadians should have received them by now.

3. Choose electronic delivery
If possible, have financial documents sent by e-mail. As long as your computer has adequate security, electronic delivery is usually safer than a mailbox, Mr. Levin says.

4. Monitor your financial transactions
Don’t wait until the end of month to see your financial statements. Go online every day and check your bank and credit card accounts to ensure all of the listed transactions are legitimate. “That’s really important,” Mr. Levin says. “You can save yourself an enormous amount of time and agony.”

5. Check your credit report
By February or March, order your credit reports from TransUnion and Equifax so you can see whether there are any new accounts that you didn’t apply for. If there are, that’s a red flag for fraud.

6. Get a paper shredder
Recycling bins are another place identity thieves can easily steal your personal information. To be on the safe side, shred any documents that contain your name and address before you dispose of them.

7. Consider doing some damage control
There are many companies that offer identity theft insurance or credit fraud monitoring. Also, some insurance companies and banks offer complimentary protection services to customers, so shop around, Mr. Levin says.

Idenity Theft

Roughly 20,000 people who reported identity theft and identity fraud crimes to the Canadian Anti-Fraud Centre last year represented an increase of about 5,000 complainants over the previous year.
"And only a fraction of these crimes are reported,"

Here are tips from the RCMP on how to avoid identity theft and fraud:

* Be wary of unsolicited emails, telephone calls or mail seeking personal or financial information from you;
* Regularly check your credit reports, bank and credit card statements and report any irregularities promptly  to the relevant financial institution or to the credit bureaus;
* During transactions, swipe your cards yourself rather than let a cashier do it for you. If you must hand over your card, never lose sight of it;
* Always shield your personal identification number when using an ATM or a pin pad;
* Memorize all personal identification numbers for payment cards and telephone calling cards;
* Trash bins are a gold mine for identity thieves. Make sure you shred personal and financial documents before putting them in the garbage;
* And when you change your address, notify the post office and all relevant financial institutions.

Private Investigator Training Course

I just wanted to let you know that Chris Pierre of Evince Services is now offering training to individuals seeking to become licensed as Private Investigators under the Private Security and Investigative Services Act.

There is a course scheduled for March 1, 2011.

For more info, give Neill Bailey a call at 613-233-8509 x 101 or email nbailey@evincesvc.com

Knowing Chris, this is going to be a good course.

Holiday Charity Scams

The holiday season is a traditional time of giving for many Canadians. Unfortunately, fraudsters know that and take advantage of our generosity. Before you give anything to a charity, you should perform your due diligence.

The following is a list of things to watch for when considering donating to a charity:

• Never give out your personal / financial information out over the phone, or           at the door.

• Don’t donate cash if you can help it. Write the cheque to the charity – not   to the person standing in front of you. This also helps you document the donation for your records and for your tax return.

• Carefully check the name of the company. Charity scams often use similar to original names to cause confusion and obtain your donations. Example: National Cancer Society (SCAM) instead of Canadian Cancer Society (REAL).

• Ask the charity to send you printed material via mail. If the material does not contain details on exactly how the money is used and the percent of donations which actually reach the given cause, do not contribute.

• Call the charity. Legitimate charities withstand scrutiny and never hesitate to prove who they are, what they do and how they do it.

• Don't give in to pressure. If the charity representative pressures you to give money immediately or as soon as possible, get suspicious.

• Be careful if the "charity" accepts an online payment. It is easy to open up a fake online payment account.

• Reputable charities will have a street address and a phone number.

• Get a receipt with the name of the charity on it.

• Ask for the charitable registration number.

• Check the company with the Better Business Bureau.