Every embezzlement, every fraud, every theft has one key ingredient that makes it possible.  What the key weakness is will surprise you.The nightmare in the headline article comes from Automotive News just a few days ago.*

It doesn’t matter whether the business is a car dealership, a financial institution, a multinational computer corporation, a clothing manufacturer, or a scrap metal business. I’ve investigated and prosecuted embezzlements or thefts in each of those cases. And the key ingredient was and is always the same.

You’d probably guess that the common element must be the angry employee out to avenge some slight.  Or the frazzled boss who was too busy to mind the store. Or the dishonest employee who was stealing the owner blind. You’d be wrong.

The problem common to every instance of white collar crime is trust.

Don’t get me wrong: The problem isn’t that we trust each other. Trust is the common coin of human interaction.  It’s what makes us human.

But trust also makes us vulnerable.  We get robbed by the people we trust, not the people we don’t. That’s because we watch the people we don’t trust and don’t watch the people we do. Thieves and fraudsters rely on our trust to blind us.

Luckily there’s a simple solution to the challenge of both offering trust and guarding our assets–for business, at least. To quote a former president:  Trust–but verify.

Simply stated:  Make sure that two sets of eyes can check every transaction, every account statement, every financial record. Ideally, those sets of eyes should be from different departments or better, should include an outside source.

Every transaction, account or record doesn’t have to be verified every time.  But every one should be capable of verification: for every one, the possibility of a second pair of eyes should be possible.  Add random oversight and regular compliance reviews of your company’s procedures to regular management processes.  Make sure that oversight takes place regularly and often.

The “verification” portion of oversight doesn’t have to broadcast an atmosphere of distrust.  Audit or compliance policies should have nothing to do with an individual person.  They should have everything to do with the regular, professional exercise of business.

In the world of “internal controls” and compliance, this is the simplest, cheapest and most elementary compliance principle there is.


* http://www.autonews.com/article/20160926/RETAIL/309269961/a-dealers-nightmare:-$2-million-embezzled

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