Fraud Detection and Prevention: Real Life Story

Employee fraud is a prevalent issue for all organizations and can lead to devastating impacts. It is essential for companies to be proactive instead of reactive to prevent future fraud instances. Below is a real-life story of a highly trusted employee taking advantage of their employer and actions that could have prevented the company from financial loss.

The Incident

Monday morning arrived. The company soon realized that its office network was down, crippling productivity. Wanda, the office manager, composed and reliable, announced she would get it repaired ASAP by contacting Billy from Pure Imagination Technologies, their outsourced IT vendor. She soon shared with the directors that Billy, after assessing the issue, estimated a lengthy three weeks and $15,000 to fix the network. That just was not an option; they needed it faster.

A short time later, the directors approved a more acceptable plan. They agreed to pay any additional overtime costs and additional consultants that Wanda and Billy would need to incur to have the network fully functional within four days. While a blank check for these additional costs was not ideal, it had to be done. Four days and $30,000 later, the network was fully restored with little more than a few days of heightened stress.

The following week, after pondering the cost of fixing the network, one of the directors called Billy. What he heard was far from what he expected. Billy had no knowledge of any network malfunction; in fact, everything had been going smoothly, and he had not spoken with Wanda in nearly a month. Immediately the director and Billy headed to the office. Once inside the server room, they discovered the horrifying truth. The network went down because Wanda simply unplugged a critical power cord. She unplugged a cord, caused a debilitating problem, alleged to save the day by working relentlessly with Billy, and negotiated a heavy $30,000 payment she deposited to her personal bank account. Then she plugged the cord back in.

The Takeaway

All too often, we hear of incidents like this one where a highly trusted employee uses that unquestioning confidence to exploit their organization. Furthermore, situations accompanied by urgency are at special risk of bypassing proper due diligence and controls. And for small organizations with limited resources, effective segregation of duties is particularly challenging.

This incident may have been thwarted without any financial loss to the organization if:

  • A director participated in the communications and conversations with Wanda and Billy, or
  • After Billy’s onsite visit, before taking substantial action to resolve, he provided a written report directly to the directors (not through Wanda).

The potential cost of fraud and weak controls can be devastating to an organization. There are ways that you can protect your organization of any size, to reduce the risk of theft like this.

Contact Us

Reach out to a member of Withum’s Multiemployer and Labor team today to discover where your organization may be at risk and what you can do about it.