Combating Fraud Through Electronic Records
March 2007
IN THIS ISSUE
— Using Electronic Records to Fight Fraud
— Caught in the Act: Examples of Successful Electronic Data Analysis
— In the next issue
GREETINGS!
Welcome to the March edition of our monthly newsletter. In this issue we’ll address the efforts to detect fraudulent activity by using various electronic records — telephone logs, electronic mail messages, analysis of hard drive contents and keystroke loggers — to determine the scope of various employee frauds, from embezzlement and conflicts of interest to employees using company time and resources to maintain a side business.
USING ELECTRONIC RECORDS TO FIGHT FRAUD
Trust can be a difficult trait to possess in oneself, let alone grant to others. Yet millions of companies do that every day when they allow their employees to use company cars, computers, expense accounts and other property. Much of the time these issuances of trust are rewarded by employees who work hard and put in productive efforts that drive their company’s bottom line. Yet the number of employees who abuse this trust for their own ends has grown in the last decade, as have the losses incurred by their companies. We’ll look at how employees can get away with fraud at their employer, and steps you or your clients can take to recover losses and create a culture of transparency.
Nearly every aspect of an employee’s working day can be documented, from cameras in the breakroom to software that logs each keystroke they input while on the job, to records of outgoing and incoming calls to and from their office phone and records of their computer’s hard drive contents and electronic mail messages. While there is some cost associated with monitoring employees in the workplace, and several privacy concerns of which to be aware, the potential to deter high-end employee theft and fraud greatly outweighs possible legal battles or cost concerns.
CAUGHT IN THE ACT: EXAMPLES OF SUCCESSFUL ELECTRONIC DATA ANALYSIS
From 1996 through 2004, the median loss caused by employee fraud rose from $400,000 to $660,000, according to the Association of Certified Fraud Examiners. As median losses have risen, so have the methods available to would-be fraudsters. Whether it is a mailroom clerk stealing corporate checks which he could then make out to associates who would reward him with a portion of the cash gained, or an employee using a corporate relocation account to pay off personal expenses, fraud can happen anywhere and be committed by anyone.
Fortunately, methods for detecting and documenting frauds are as numerous as the means by which they are committed. In the past, we have documented instances where a government employee had, on company time, maintained a real estate venture while neglecting his duties at his official position. By analyzing his telephone records and electronic mail as well as outside sources such as corporate records and property documents, we were able to show that the employee spent hours making calls to tenants and his wife, who acted as his outside liaison and property manager.
In certain instances, privacy concerns can be an issue. While most employees do not enjoy an explicit right to privacy while in the workplace, both unionized employees and government employees typically have certain rights, including having counsel present during any searches of their offices, so be sure to consult with your company’s legal counsel before taking any action if appropriate.
Only through carefully documenting the nature and extent of frauds, and putting into place measures to combat them, can your company impress upon its employees — at all levels — the importance of exercising due care and honoring their duty of loyalty to the employer while on the job. Although investigations can be costly and potentially cause unease within the workplace, if done in a discrete and professional manner they can help to recover lost monies and convey to your employees the need to be honest at the workplace.
IN THE NEXT ISSUE
Next month we will look at the risks involved in contributing to charitable organizations, and highlight some useful steps that can help both corporations and individuals make certain their chosen charities are reputable.
Contact Information