One of the most common questions asked of employment lawyers is how to safely sack an employee or director who is suspected of being on the take. It is a question that often cascades down to forensic accountants who are asked to provide financial evidence for the frauds or assist with tracing and recovering the money. Often, such fraud specialists will be asked to assist with the disciplinary process and also with providing a pivot for the subsequent civil or criminal action.
One thing that generally becomes obvious when asked to help out is that an organisation seems to be very indignant that a trusted member of the business could turn out to be a thief. However, nearly always the problem has been created by the business itself, usually because no heed has been taken whatsoever to the risk of fraud.
There is a commonly recounted saying that only 10% of the population are criminally minded, but that only a similar amount of 10% are truly law abiding. The rest of the population 80% are usually good unless motive and opportunity are put in their way.
Motive and opportunity – the most significant drivers of fraud – far more important than having a criminal mindset in the first place. To see how this works – take a pretty common situation where a financial director uses his director’s current account (correctly) to record any personal spending. At the end of the financial year he raises a bonus large enough after tax to clear the current account.
This is a pretty common occurrence and many business owners do the same. But what if the finance director is the person who is trusted with all the accounting function and the other directors, often not so financially astute, leave the money side to him? If the bonus is not authorised then this is effectively theft.
The finance director may argue that he has posted similar bonuses to the other directors’ accounts – and shows them their accounts in credit. But this is a paper accounting figure and the business may not be able to afford to pay the sums owing to the other directors – yet the finance directo has had the benefit of the expenditure throughout the year.
If the company policy does not have controls to prevent the above, it is possible that the finance director will escape sanction and it will be hard to dismiss him. It is important where one person is given overall control of a finacial function that there are some controls in place to make the person answerable. For instance, there will be limits to spending (cheque writing, credit card payments, bank mandates etc) without second or even third director approval. There will be a regular publication of directors’ current accounts and any payments or bonuses over and above contractually agreed amount must have general (and minuted) board approval.
In my work as a forensic accountant I see too many instances where a couple of business owners or directors suddenly realise that a fellow director has overstepped the trust they have been given. They want his blood but in fact in many cases they have simply given him too much opportunity and when motive arises – and being short of money can arise very easily for all manner of reasons – it is only human nature for the vast majority of people to succumb to the temptation!