The financial impact of even one instance of workplace fraud is significant. Transportation and warehouse employers who were defrauded last year faced a median loss of $143, 000, according to a 2016 study from the Association of Certified Fraud Examiners' (ACFE).
"It is easier for criminals to find out information about trucking companies and commit fraud at a faster pace now than ever before," said Mary Ann Hudson, executive vice president of Bibby Transportation Finance at Bibby Financial Services, based in the UK. While stealing inventory is the leading crime plaguing the industry, other fraudulent activity occurs, including vendor billing fraud, embezzlement, broker fraud and identity theft.
Occupational fraud typically takes place over a long period of time. Jeff Roberts, managing director at Springfield, Mo.-based CPA and advisory firm BKD, LLP, said it's common to see schemes lasting five, 10 or even 20 years, which can cost companies millions.
Employers in the trucking industry, however, can take preemptive measures to detect unusual activity.
Red Flags of Fraudulent Activity
To minimize incidents of occupational fraud, be aware of the top five warning behaviors that perpetrators display:
- Living beyond their means
- Experiencing financial difficulties
- Having unusually close relationships with vendors and customers
- Displaying a "wheeler-dealer" attitude
- Showing control issues and being unwilling to share duties
“Know your business (employees and vendors), and if something seems too good to be true it usually is," said Hudson. “If you have an employee that has a drastic change in lifestyle, investigate."
Unfortunately, Roberts said these red flags often surface in hindsight, since corrupt employees commonly cover their tracks with seemingly legitimate stories.
For example, an employee getting a moderate salary who drives an expensive car, has a boat and generally lives beyond his or her means may circulate stories about winning the lottery or coming into a large inheritance to hide their fraudulent activities.
Assessing an employee's uncharacteristic behavior is also difficult to do immediately, since perpetrators may not commit fraud until years after they've been hired.
An employee who's suddenly faced with a family emergency may rationalize taking money from the company as “taking out a loan" that they'll later repay. Such cases, however, are usually the exception.
“Most of the time, people are stealing to live a lifestyle they couldn't otherwise afford— usually it's the nicest, most trusted people in the office who are guilty of fraud," said Roberts. Employees who've gained their employer's trust typically have the access and authority to handle financially-sensitive matters.
The ACFE reports that of the various types of occupational fraud, transportation and warehouse operations see the highest cases of corruption and non-cash misappropriation (e.g. stealing inventory), which account for 51.5 percent and 29.4 percent of the industry's fraud cases, respectively.
While the ACFE cites employees as being the most frequent perpetrators of occupational fraud cases in the U.S., Roberts said that trucking and warehouse occupational fraud tends to be perpetrated by those at the managerial level or higher, with 70 percent of perpetrators being male.
Three Ways to Detect Fraudulent Activity
Along with staying tuned-in to common warning signs, here are three strategies to help catch occupational fraud before it goes too far.
1. Set Up an Anonymous Tip Line or Online Form
The ACFE found that in fraud cases uncovered by an anonymous tip, telephone hotlines were the most commonly used method (39.5 percent of cases) to detect fraud. Similarly, an online form can also offer employees an easy and anonymous way to share unusual activity with employers.
2. Establish Good Internal Controls
Make sure you have a well-structured set of financial checks and balances in place.
“Don't let the same person write checks, sign [those same] checks and set up new vendors," said Roberts. “That's a recipe for disaster."
3. Leverage Monitoring Tools
Software programs can check on payment patterns and highlight aberrations. For example, a manager may set up a phony vendor to receive payments for corporate IT work. The software can identify if, over time, the size of those payments grows as the manager realizes he's getting away with the scheme.
Unfortunately, no company is inherently immune from occupational fraud, but that doesn't mean there's nothing you can do. By staying vigilant to warning signs and implementing thoughtful detection strategies, you can try to place your company a safer position.
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