The trauma of employee fraud - special report

Private investigator Ron McQuilter says that when a well-liked trusted staffer commits fraud, an employer never gets over it. Photo/John Borren

Businesses in the Bay continue to fall victim to internal fraud, often committed by long-serving employees who are trusted - and cared for - by their bosses and display a seemingly model approach to work. Reporter Juliet Rowan investigates the impact employee fraud has on local businesses.

TRUST and BETRAYAL

Private investigator Ron McQuilter recently held a wealthy businessmen crying in his arms when the man realised he had been defrauded by a trusted employee.

"It's like a partner cheating on you," McQuilter says. "It's just absolute disbelief and horror."

The Mt Maunganui 59-year-old is one of the country's most experienced private investigators and has investigated hundreds of cases of employee fraud in his 32-year career.

Chairman of the New Zealand Institute of Professional Investigators and a certified fraud examiner, he says the sting is worse in small businesses and the common thread among victims of fraud by trusted employees is that they never get over it.

"I've yet to see anyone come right, even when they get the money back," he says. "It's a horrible, horrible betrayal of trust. It's like a family member stealing off you."

They've taken their eye off the business ball. The business head has gone and they're treating employees and the business like family. But it's not a family. It's a business, and the bank will be unforgiving. The bank can take your house.

Rob McQuilter

McQuilter says as well as feeling betrayed, the victims of employee fraud usually feel responsible for missing warning signs - see context box below.

They are often left reeling, their lives and businesses in turmoil, following the theft of money or goods they are unlikely to ever recover.

"Quite often it's the death knell for the business and often other people lose their jobs as well."

MORE THAN YOU REALISE

McQuilter says half of fraud is never reported by business owners "because they don't like hanging their dirty washing out in public".

They fear damaging their reputation with customers, suppliers and creditors, and usually try to get reparation from the employee themselves if the amount is small.

Such fraud only tends to be reported to police when the amount exceeds about $50,000 and the chance of recovering the money diminishes.

McQuilter says employee fraud tends to increase during times of economic recession, particularly in the retail market, as business owners invest less in accountants and external audits.

"A lot more trust gets placed on existing staff. When that happens, that's the recipe for fraud."

In small businesses in which employees are permitted access to the accounting and banking systems, there also exists "the perfect storm for fraud".

"It's because one person does multiple tasks. There's no crossover of responsibility," he says.

FRAUD MADE EASIER

Electronic systems have made it easier for employees to carry out such crimes and, in some cases, false invoices are even discovered on the computer of the victim company.
McQuilter says bosses need to get their head around checking all invoices and ensuring only genuine ones are paid.

Private investigator Ron McQuilter.

"The golden rule is you don't allow anyone who authorises an account to pay an account.

"They could easily create false accounts and false invoices."

Often, he says, small-business owners suspect they are bleeding money but do not do anything until the situation is dire - typically when they have reached their overdraft limit or their bank is threatening action.

"That's where we find these family-type businesses have the problem.

"They've taken their eye off the business ball. The business head has gone and they're treating employees and the business like family. But it's not a family. It's a business, and the bank will be unforgiving. The bank can take your house."

As well as maintaining robust accounting practices, he urges bosses to act early if they suspect a problem.

"You can't fear that you're going to upset someone."

He also urges people to maintain a healthy distance from family members employed in their businesses, saying he recently investigated a case involving a son stealing from his father.

INSIDE JOB

In February, the Bay of Plenty Times reported that more than half of Western Bay businesses were the victims of internal fraud, with many not aware of the situation.

The comments were made by two other private investigators who, like McQuilter, said small businesses were particularly vulnerable.

Police are unable to provide figures on the number of cases of employee fraud, area commander Inspector Clifford Paxton saying fraud is a broad category.

The Serious Fraud Office told the Bay of Plenty Times Weekend it deals with fraud cases involving sums of more than $2 million or others with a high level of public interest.

This week, the office prosecuted the case of Rotorua financial adviser Linnet Bernadine Lewis, who stole $1 million from elderly clients.

The 55-year-old pleaded guilty and will be sentenced on June 19.

Detective Logan Nicholas, who investigated Tauranga's Triac Light & Sound case, said he has seen many cases of employees ripping off their bosses in his 17 years in the CIB.

"Small businesses get affected hugely by these mid-level frauds because they're not cash-rich," he says.

"Small businesses carry debt and once their staff start thieving, they almost lose their livelihood."

He also said that treating staff like family is a trap small businesses fall into, misguidedly placing trust in people they think they know but who may be hiding addiction or gambling problems.

"The employer knows their staff at work. They don't know their staff out of work. You can't be over-vigilant on employees and you have to have strong practices and procedures in place. It's a lack of those processes and systems that allow people to commit fraud."

Potential signs of a fraudulent employee:

- Private investigator Ron McQuilter says employees who commit fraud are often those most trusted and valued by their employers.
- "They're the people the bosses think are wonderful," he says.
- They are usually long-serving employees of at least three years and often there is a trigger - something that's "made them flip" - such as jealousy over profits, a family member losing his or her job, mounting debts, and gambling or other addictions.
- But there are also people who commit fraud solely for their own gratification, he says.
- Mr McQuilter says telltale signs may include:
- Someone who is always early to work and always last out at the end of the day.
- Someone who never takes holidays.
- Someone who wields control over the accounting system, never letting anyone else look at the accounts or make changes to the system.
- Mt Maunganui fraud victim Jamie Black warns employers to be wary of employees for whom nothing appears to be an issue and who can explain away every problem.
- He says Dionne Guinness, who admitted stealing more than $350,000 from his business, also had a tactic of over-explaining her work in an attempt to appear a model employee and deflect suspicion.