When staff have sticky fingers

I have a friend who owns a small business in a small town but wants to sell up because of problems in finding the right staff – namely ones who don't help themselves to the takings in the till.

She and her husband work long hours to make a decent living out of the business but find it gut-wrenching when the people they work cheek-by-jowl with daily turn out to be less than trustworthy.

They're not the only employers to feel this way.

According to the 2012 Report to the Nations on Occupational Fraud & Abuse, the typical organisation among those surveyed in the Asia-Pacific region loses 5 per cent of its annual revenue to fraud. The median loss from the 338 Asia-Pacific cases in the study was US$300,000 (NZ$356,000) almost double the global median.

Most frauds went undetected for a year and just under half were only uncovered after a tip-off. Worldwide, nearly half the victims – mostly small businesses – didn't recover any of their losses.

The KPMG fraud barometer out last week showed about half of the fraud cases in New Zealand in the six-month period involved employees and management.

In fact, throughout the four years the barometer has been running, managers have been the most common perpetrators of large frauds. The more senior they are in an organisation, the more they can misappropriate due to their access to information, authorisation, and ability to override any internal controls, KPMG said. They most often work in finance or purchasing, where they have more opportunity to get at the dosh or goods.

But recent prosecutions of dodgy workers show they come in all shapes and sizes. The not-for-profit sector appears particularly vulnerable with accounting firm BDO estimating this year that around 57 per cent of charities nationwide could be impacted by fraud.

In a couple of recent examples, the Manawatu branch of the New Zealand charity The Chosen, which aims to free gang members from a life of crime, had to put in anti-fraud strategies after it lost $40,000 to employee fraud.

In another case last year the former chief executive officer of the Lion Foundation, a charitable organisation that owns gaming machines, was found guilty of false accounting after altering journal entries to effectively write-off just over half a million dollars worth of debt.

New Zealand's largest case of employee fraud was the $17.8 million stolen by ASB Bank worker Stephen Versalko. The 51-year-old was jailed for six years in 2010 for stealing money from 30 wealthy bank customers after advising them to invest in non-existent, high-return finance schemes. The Serious Fraud Office discovered the long-time bank employee had spent over $3m of his ill-gotten gains on a couple of prostitutes.

Most employee fraudsters are first-time offenders with clean employment histories and fraud investigators say there's usually a trigger that sets them off. It can be a financial problem such as a gambling debt they can't repay or perceived mistreatment such as missing out on a salary increase which made them think they were "entitled" to help themselves.

Red flags include staff suddenly living beyond their means (though hiring escorts may be difficult to detect), excessive control issues over their work, and unusually close relationships with vendors or customers.

The most important anti-fraud measure is avoiding having your business finances handled by just one person. One employee should send out the bills and another collect the mail and make bank deposits.

The Report to the Nations fraud study also found two of the best ways to keep theft at bay were surprise audits and hotlines. Those with nothing to hide won't mind.