However, due to the very nature of fraud, creative employees working within an environment constructed with ineffective or non-existent internal controls, or worse, complacent supervisors and owners who simply do not perform the reviews and control measures, often circumvent any preventive measures.

That is why detection measures need to be incorporated within the control structure, to detect a scheme as early as possible, and to minimize the loss to the organization.  Together preventive controls coupled with detection measures are any employer’s best line of offense against the risk of employee embezzlement.

The third and possibly the most important component is to ensure the organization has adequate employee dishonesty coverage.  When an employee circumvents both preventive and detection measures, the losses add up, and very often the only means to recover the diverted funds is through an insurance claim. Adequacy in this day and age should start at $100,000, but is subjective to each organization.

Last Monday my latest book was released by Wiley, Preventing and Detecting Employee Theft and Embezzlement: A Practical Guide. I encourage everyone who has employees, or who is responsible for employees within the financial areas of any business or organization, to read my latest book. While it appears to be a bit of self-promoting, I wrote this book in response to twenty years of requests from business owners and managers who direly needed a practical resource to easily follow for implementing internal controls within their business. Well, now it exists.

The book can be found anywhere on-line where books are sold. Here is one link for Amazon.

Scams identified to date include on-line stock sale offers in companies appearing to be associated with the cleanup efforts,  bogus job offers relating to clean-up companies, and solicitations of funds and contributions to be sent for oil spill relief efforts.  The goal of these exploits is to fraudulently obtain your personal information and your funds, neither of which will be used legitimately.

You need to be careful.  Due diligence is in order.  Before you provide any information or send any contributions relating to the oil spill disaster, do your homework and assure yourself that the organization and offers are legitimate.  If you can’t legitimize the information objectively, run don’t walk away from their sites and offers.

It is just another sad sign of the state of our society, and so unfortunate that so many seek to take advantage of our emotional willingness to help in times of need for their own personal exploits.  Not only does it make everyone more skeptical to help at all, furthering the erosion of our society, it significantly effects the legitimate organizations who truly want to help those in need.

A small charge, an amount under a dollar up to a few dollars, appears on your credit card statement.  Due to the insignificance of the amount, you don;t bother spending any time trying to figure out what it was for, and having it reversed off your account.  You try and recall where the charge could have come from, perhaps an adjustment to a legitimate purchase.

I never thought much about thieves stealing million of credit card accounts, and simply charging a few dollars to each stolen account.  But as it turns out, that’s exactly what they do, and a few dollars charged to millions of accounts, results in millions of dollars.

I went home that night and checked my credit card statements, and sure enough, I found these insignificant charges on my account.  The total of them do not warrant my doing anything about it, but they are there.  I’ll bet if you look, you’ll find them on yours as well.

Here’s the link to an article where the FTC just busted a very organized ring was stealing credit card accounts and doing this very scheme.

What amazes me more than the gambling is the amounts that can be lost, and with the embezzlements, the amounts that can be diverted from an organization to support gambling without the organization missing the funds.

Case in point comes from an article in today’s Journal Inquirer, a local Connecticut newspaper.  “Woman gets 9 months for thefts.”

The woman in the article was convicted of embezzling $335,000 from a local school lunch program.  She was the director of dining services for the local town, and took cafeteria receipts, concealing the thefts with falsified logs.  The article also stated she lost more than $380,000 over six years gambling at the slot machines.

The real questions I have after reading this article are 1) how much funds flow through this town’s cafeteria services to have been able to loose $335,000 and not miss the funds, and 2) where were the basic level internal controls over cash receipts, collections, entries and deposits to have both prevented this from happening in the first place, and also to have detected discrepancies as soon as they started to occur?

I guess a third question would be fair as well – towns like this town undergo annual financial audits by outside accounting firms.  Given the existence of casinos in CT and the high risks of gambling and embezzlement, why wasn’t such a large theft detected as part of any year’s audit?

Just makes me wonder just how much fraud, theft and embezzlement is occurring as we speak, waiting to be detected or discovered, or more likely, waiting for accidental identification after the snowball effect has occurred.

The email describes a new issue posing a significant risk, where individuals use empty soda bottles and common household items to make bombs out of empty plastic soda bottles.  Then they put these bottles into folks’ mailboxes or leave them on people’s lawns.  The unsuspecting person sees an empty bottle on their lawn, picks it up to properly discard or recycle it, and it explodes.   The chemicals inside heated to a boiling point, and cause severe thermal and chemical burns, likely to the hands and face, and the explosion can take off fingers.

We teach our kids to be litter conscious, and if they see things on the ground, to pick them up and recycle the things that shouldn’t be discarded.  The kids I know at our school and in our boy scout troop get this message repeatedly, and have become accustomed to seeing things laying around and picking them up.

Now what do we tell them to do.  Do we simply leave all litter and bottles on the ground for fear that what looks like an empty soda bottle with a little soda left in it is actually a bomb?  How do we re-train our kids to ensure they don’t have one of these explode on them?  I know for myself I don’t want to even touch one again after reading the article and viewing the video.

Think about the implications this likely will have on our environment, recycling, and our safety.  Just sad.

What can be done so individuals stop ruining our society and our way of life?

Here’s the link to the story and video:

http://www.snopes.com/crime/warnings/bottlebomb.asp

As I read the instructions it dawned on me that we used our credit and debit cards in many different contexts beyond store purchases, gas purchases, red box terminals and ATM machines.

At the airport I had to use a credit card to retrieve my boarding passes – the airlines call it “self-service” checkin.  Nothing self-service about it, we had to get in line both ways due to system issues.  I wondered what system was behind the self-service terminals that hundreds of thousands of travelers insert their credit card into every traveling day, and more importantly, what safeguards were in place to protect my card information from skimming or theft.

The safe in our room had two options – enter a private code or swipe a credit card on the reader.  The same card used to close the safe would be required to be swiped to re-open the safe.  I wondered what systems were behind the safe tracking my credit card information, and more importantly, who had access to my card information when I swiped.  I chose to enter a four digit code, as I had no way of knowing if dishonest employees could access all the cards swiped on the room’s safe.  And then I wondered how many safes were in this one hotel – hundreds.  In all the rooms in all the hotels in the US alone – thousands…

An individual attending one of my sessions in Miami asked me what I suggested for a replacement to using debit and credit cards due the high incidence of skimming.  She asked if we should switch back to cash only.  I responded that if we did that, the number of personal robberies would certainly increase.

The solution if to be prudent where you use your credit card, monitor your card’s activity, loose your debit card (and switch to a credit card), and remain vigilant.

I came across a frightening image.  It was a picture of a redbox movie rental station, focused in on the credit card swipe area.

Much to my surprise I learned the folks stealing our credit card and debit card information have been installing their card skimming devices onto redbox stations.

If you are a redbox user like myself, you need to start watching for signs to ensure that a skimming device has not been added to the redbox station you use.

Here is the URL to the redbox image to help show you what to look for:

http://4.bp.blogspot.com/_Y5Wj_eMCNq4/SFx15mMbAoI/AAAAAAAAAYU/OegMqgrtUCI/s1600/redbox.jpg

What a great book.  It is a simple story of a bank employee embezzling from the bank customer’s savings accounts, and how a superior bank employee discovers the theft.

What made this book and story interesting enough for me to start and finish it in one night, 160 pages, something I never do, is that the scheme and the details around the scheme, including how it was detected, quantified and supported, is as applicable to day as it was when this was first written, in 1936.  Just another example of how fraud really hasn’t changed over time.

The setting is interesting, being 1936, but the writer had accurate details on how this would have occurred, perhaps with the assistance of a subject expert at that time.  I may never know, given the age of the story, but substitute any one of my on-going existing embezzlements into this story, and I can see it still working as it did back then.

If the field of embezzlement and fraud is one that interests you, I highly recommend you read this book, if you are fortunate to find a copy still available.

A movie was produced in 1940 based on the book, called “Money and the Woman.”.  Here is a link talking about the book and movie:

http://booksintofilms.com/support-files2/cain4.htm

The Embezzler.  James M. Cain.  Avon Book Company, 1946.

While convenient for transporting files home to work on, or for sharing files and photos with friends, these USB drives pose a serious risk for employers. Ill-willed employees could simply copy confidential files, such as client lists, trade secrets, employee information o even the accounting files, right onto a concealed USB jump drive, and take the information with them.

Company policies should state that all company information is proprietary and remains the property of the company. No personal possession, copying, transferring, or downloading is permitted for any reason. All employees should be required to sign both a confidentiality agreement as well as an acknowledgment for receiving the company’s policies regarding company information. The signing of the forms will act both as a deterrent as well as allow for enforcement in the event company information is diverted.

USB jump drives should be prohibited, and the company’s IT policies and procedures should ensure that all files are regularly backed up. Using USB jump drives as a permanent backup solution will cause you headaches when the drives fail, and they do fail at a high rate when used frequently.

If needed, the USB ports on employee computers can be disabled, preventing employees from making illegal copies of company information via USB.

If you don’t know what these drives look like, or worse in what objects these drives are available (concealed), you should spend a few minutes searching images on the Internet – you will be amazed where these drives are turning up.

Protect your company’s valuable assets.

If you want to remain current in the world of employee embezzlement, I suggest you develop a similar routine to keep up with the latest developments.

I am amazed that some types of employee thefts, tried and true for years on end, continues to plague employers in this day, especially when they are very well known and very basic schemes.

My routine involves shopping at Staples, although any office supply store would suffice.  It is there that you will learn the latest types of pens, inks and other office supplies that can be used by an ill-willed employee to steal from the company.

The latest is the revival of the erasable ink pens.  There simply is no place for erasable ink pens (or pencils) in the accounting department of any employer.  For example, checks manually prepared using erasable ink pens can be altered after they are signed – the thefts are just that easy.  This is why you need to know what these pens look like, and scream if you see your staff using them.

Pilot’s “Frixion” are the latest rage.  The ink can be removed by friction.  Simply use the rubber end of the pen and erase off the writings.  There is no place for these in the finance and bookkeeping offices.  You need to know what they look like, and ensure they are not being used.  Better still, never have manual checks altogether – insist all checks are computer generated from your accounting system.

What the Frixion package does not tell you is that the ink is also thermostatic ink (reacts to temperature).  If you write with the pen and heat up the area where you wrote, the ink will go transparent.  Once cooled, the ink will re-appear.  Fun for a science project, and for ensuring a document is the original, but no place for this in accounting.

I encourage you in your battle against employee fraud to visit your local office supplier on a regular basis, to watch for the latest items.

Watch for my next post – USB Jump drives.