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BANFF, Alta. - Employee misconduct can be far more serious than tardiness, excessive absenteeism or even dipping into the petty cash, according to two forensic accounting investigators who spoke at th...

BANFF, Alta. –Employee misconduct can be far more serious than tardiness, excessive absenteeism or even dipping into the petty cash, according to two forensic accounting investigators who spoke at the recent Alberta Motor Transport Association convention.

Greg Draper and Brian Tario said employee misconduct can be far more serious, including: corporate theft; fraud; stealing intellectual property; secret commissions or supplier kickbacks; money laundering; threats, harassment, and ‘complicity with fraud and conversion against employer.’

The former RCMP investigators are now with the Calgary-based chartered accountant firm of Meyers Norris Penny (MNP) and specialize in what they say is a growing problem, due to the recent economic downturn. The pair noted 85% of their investigations are related to theft and much of that is related to addiction. “Of that 85%, a significant portion of that is (related to) gambling,” said Tario.

The MNP investigators encouraged AMTA fleet operators to develop a heightened awareness about the people who work for them, particularly when employees have control of company assets or the ability to manipulate assets.

“It’s really important to understand who those personalities are,” said Tario, who suggests looking for telltale signs. “It’s one thing to know what they do at work. It’s another thing to know what they are doing when they are away. Try to get a bit of an understanding about what your employee’s personality looks like, and whether or not you have any vulnerabilities there.”

The forensic investigators talked about the influence of technology on the workplace today, which provides an opportunity for illegal activity related to computers, whether it’s accessing company accounts, e-mail, or the Web. Tario spoke of one controller of an unnamed company, who was frequently using the Internet for day-trading on the stock market, before he made a foolish error.

“When he got a margin call, he simply wrote a cheque from the company books,” he recalled.

The MNP investigators encouraged attendees to protect corporate intellectual property such as customer lists and contractual details, all of which can be vital to the viability of a business.

“You really have to understand who’s got control over that, what they can do to it, and what would happen if something went wrong.”

Secret commissions or supplier kickbacks are the most difficult to detect and prove, according to the investigators, because of a code of silence that surrounds such clandestine arrangements.

“The law in Canada is written in such a fashion, that the person who gives the secret commission and the person who receives the secret commission are equally guilty in the eyes of the law,” said Tario.

Money laundering is another potential problem within the trucking industry, often connected to the drug business.

“It may be something just as simple as a driver taking a load of cash across the border, or across the provincial line,” Draper said.

Employee misconduct may include more than one employee, as well as an outsider that has breached corporate security. Misconduct of an illegal nature can reach all levels of an organization, not only the rank and file, but also senior management, according to the investigators.

Surprisingly, the average tenure of employee that commits workplace fraud or theft is seven to 10 years – long enough to give the appearance of loyalty.

“They’ve been there long enough to build themselves a position of trust,” said Draper. “You’ve given them access to your accounting records, to your assets, your bank accounts. They are able to understand how the money comes in and where it goes out; what controls are in place, and what controls are not in place; (as well as) what controls are in place but aren’t really followed.”

When Tario or Draper are called to investigate a financial loss that’s initially suspected to be merely tens of thousands of dollars, they are not satisfied about the extent of financial damage until a full investigation is complete.

They often discover that they have just touched the “tip of the iceberg,” said Tario. “By the time the investigation is finished, it’s usually a multiple of seven to 10 times that. So if you think you have a $40,000 theft, it may be a $400,000 theft,” said Tario.

The investigators warned the AMTA about maintaining accounting diligence, such as matching invoices with purchase orders to avoid embezzlement by an insider or an outsider. They also encouraged the AMTA to ensure that cheques paid out for purchase orders are written to a legitimate company and not to a false account.

Tario noted that Alberta allows for the registration of multiple companies that appear to have the same name, such as: ABC Ltd., ABC Inc. and ABC Co., which could offer potential confusion to an accounts payable department.

“When you’re signing a cheque, do you pay attention to whether it’s a Co., an Inc. or a Ltd.?” he asked AMTA delegates. “They’re all very similar, and we’ve seen employees actually go out and incorporate companies and use that as a method to gain access to the assets of an organization.”

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