White Collar Crime is Knocking at Your Door: Are You Prepared?

By Charles Hall | Fraud

Feb 27

If your business has money and employees, then you’re a candidate for white collar crime.

White Collar Crime

White Collar Crime Happens!

For most organizations, it’s not a matter of if fraud will occur, it’s a question of how much will be stolen. The Association of Certified Fraud Examiners’ biennial survey shows that the average business loses 5% of its revenues to fraud. Imagine adding that amount to your bottom line, because when theft occurs, your net income is reduced by the amount stolen.

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As a Certified Fraud Examiner, I have taught thousands of people how to reduce the threat of white collar crime. My teaching–for the most part–has been through the Carl Vinson Institute of Government, a division of the University of Georgia. While I love teaching in a classroom, sharing fraud prevention through CPA-Scribo is loads of fun as well!

No One Steals from My Business

Most business owners, board members, governments, and nonprofits think “fraud may happen in other organizations, but not in our place. Our people are honest.” Well, let me say I’ve seen plenty of “honest” people steal.

In almost every fraud I’ve seen, the business owners and fellow employees are dumbfounded by the occurrence of theft–usually by a trusted employee. People steal because they can. You may be thinking, “What?” Let me repeat, the reason people take is because they can. In fraud prevention parlance, we call this “opportunity.”

So, am I saying that all people with opportunity steal? No, but individuals who steal have an open door to do so. It’s our job to remove the ability to steal without detection–and to eliminate the temptation.

And why do employees have the opportunity? Because we trust them. Trustworthy people move up the organization chart. And the further up the org chart they advance, the greater the opportunity.

Fraud Cycle

And, how do trusted employees move into positions of authority?

A strange cycle happens in white collar crime:

  • We hire a likable, trustworthy person
  • The employee serves the organization well, proving his merit
  • As he moves to higher positions, he greater ability to steal
  • No one monitors the employee because he is (seen as) honest
  • The employee realizes he can take without detection
  • Small amounts of money are taken to test the water
  • Later, the stealing of larger amounts occurs

So, the employee goes from trusted employee to fraudster. The transformation occurs gradually. Often the fraudster rationalizes his theft by saying to himself, “I’m borrowing this money. I will put it back.” Then when the discovery of fraud occurs, everyone is shocked.

Examples of People Who Steal

And what kinds of trusted people steal?

I have seen the following individuals take money:

  • Chief executive officer
  • Board member
  • Pastor
  • Church secretary
  • Healthcare executive
  • A lady who was dying
  • Doctor
  • College president
  • Swim club volunteer
  • Seminary Foundation employee
  • School principal

I could go on, but you get my point. People who we think would never steal, do.

So, how can we prevent–or at least lessen–the threat of fraud? Transparency is a key.

Transparency Lessens Fraud

If transparency is important, why don’t businesses have it?

Small businesses often lack the ability to segregate accounting duties, and this lack of segregation creates opportunities for theft. Why? One employee controls several critical accounting processes, resulting in the ability to steal without being seen.

To lessen the possibility of fraud, we must create transparency in accounting processes. Employees are less likely to take when their actions are visible to others. That’s why segregation of duties is necessary–more eyes are on accounting transactions, making it more difficult for theft to occur without someone noticing. Even if an organization has few employees, it’s possible to create transparency. Many of the blog posts in CPA Scribo are about creating this transparency.

How CPA Scribo Helps

CPA Scribo is designed to provide you with fraud prevention information.

I can’t visit everyone that needs fraud prevention assistance, but I can provide (free) information about how theft occurs and how you can lead the way–in your organization–in preventing fraud.

Here are some of my fraud prevention posts (each with a clickable link):

Finally, I hope you’ll join us here at CPA Scribo for more information about fraud prevention, accounting, and auditing. See the subscription box below.

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About the Author

Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty years, he has primarily audited governments, nonprofits, and small businesses.He is the author of The Little Book of Local Government Fraud Prevention and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events.Charles is the quality control partner for McNair, McLemore, Middlebrooks & Co. where he provides daily audit and accounting assistance to over 65 CPAs. In addition, he consults with other CPA firms, assisting them with auditing and accounting issues.