Heading Off Fraud In The Workplace


By Jerilyn Klein Bier 

Wealth management firms and financial services businesses in general are ripe environments for fraud and it’s a good time for management to evaluate and improve the deterrents they have in place.

“Anywhere the money is are the places you need to be concerned about,” said Kelly Todd, a managing member and the member in charge of forensic investigations at Forensic Strategic Solutions, a nationally recognized financial investigation firm headquartered in Birmingham, Ala. “The temptation obviously is quite heightened and the risk is much higher” where money is flowing in and out.

According to Todd, spotting and preventing fraud in the workplace requires detective skills, commonsense rules, good data analytics, annual employee training and a frequent reminder to employees that their wrongful actions can be detected.

“The cornerstone of fraud is concealment,” she said, and it’s the ability to conceal that drives perpetrators’ habits whether they’re motivated by “need or greed.”

Regardless of their industry, employees who commit workplace fraud typically exhibit similar behaviors, says Todd, including coming in early or staying late, failing to share timely information with colleagues, living beyond their means or having known financial problems.

When she and her colleagues start an investigation, the first place they look is the parking lot on the way into the organization. “Just because someone is driving a really nice car it doesn’t mean they’re committing fraud—a red flag is just a red flag,” she said. “[But] it gives you an indication of where to look a little bit further.”

Support staff commits fraud more frequently but the losses tend to be significantly less because of limited access, said Todd, noting that they’re more likely to alter rather than delete information. Executives tend to commit fewer but much larger frauds, she said, because of their greater access and ability to conceal their actions (such as overriding controls, deleting information and creating phony information).

According to the Association of Certified Fraud Examiners’ 2018 Report to the Nations (based on its 2017 global study), employees perpetrated 60 percent of the cases of occupational fraud in the banking and financial services industry (median loss: $50,000), managers perpetrated 25 percent ($205,000) and owners and executives perpetrated 12 percent ($2 million).

Todd strongly advocates using computer assisted audit techniques and data analytics to quickly detect atypical patterns for transactions. Every account has typical transactions that one expects to see, in terms of size and frequency, she said, and these tools can readily identify transfers that are larger, more frequent or just below a preset limit.

Organizations must limit access to information only to those employees and third-party providers who require it to do their jobs, said Todd, and they should lock down access through strong passwords and encryption.

Management review and dual authorization of transactions is also critical. “If you think of a transaction as a circle,” she said, “no one should be able to complete the entire circle by themself” because it would allow for concealment.

Assessing potential conflicts of interest and relationships between people along the transaction circle is also important. Recently, the attorneys representing a large estate called in Todd to help with a situation where collusion occurred. The estate’s trustee—an attorney and the spouse of a money manager at the institution where the estate was being managed—stole millions of dollars because the spouse approved the transactions.

Finally, companies that have whistleblower hotlines or some mechanism to turn in tips typically have fewer, shorter and less costly frauds, said Todd, who noted that most frauds are detected by tips and that hotlines are often anonymous. “The employee is more likely to turn in a tip,” she said, “if they feel like they can trust the process, understand the process and know that they’re going to be anonymous.