By: Majed Al Rashid,

Edited by: Ayman Abdelrahim


trust

Motivation, Rationalization and Opportunity are the three factors that must be met and available to enable a fraudster committing fraud. The motivation may be a material; to make money, or moral; to achieve fame. Rationalization, however, is the justification of the act to be committed and the reasons for persuading one’s mind that this work leads to justifiable benefit and an acquired right in some cases. While the third factor, which is in relation to the availability of an opportunity, is the most important factor because it is the only one that can be oversighted, controlled and reduced. The opportunity factor is the possibility of a defect in the procedures such as lack of control measures or lack of effectiveness. However, what if the trust factor among staff, which is required to accomplish business smoothly and easily, becomes an opportunity that can be exploited and manipulated without affecting the person committing the act?

An incident that happened in a company shows that the disregard for the implementation of some actions as a result of trusting certain staff, eventually led to fraud, which could occur in any other company. The added trust towards particular personnel, coupled with the leniency or laziness in the implementation of controls were the cause of this fraud case as would be revealed in detail through the remainder of this article.

Incident Details

A certain company is made up of a group of showrooms. According to the policy of the company, each showroom should have at least one manager and an assistant; however, this does not necessarily mean that there are no showrooms with one personnel only, due to lack of hired staff. This is the case in our discussion of this fraud case here: one of the company’s showrooms suffered from a difference in the inventory due to the manager of the showroom selling the products in the name of his own personal account (since the sales were not registered in the company’s books). Since he works alone at the exhibition without the availability of a second pair of eyes. Later, the company decided to appoint another employee – an assistant manager – to assist him in performing the tasks assigned to him. This decision served as a gift from heaven to the manager to get him out of his troubles in the inventory… so, how did that happen?

The manager decided to go on a short leave for several days. The company’s procedures stated that the showroom inventory must be counted and documented in the inventory books before the showroom was handed over to the assistant, and that he was responsible during the period of the manager’s vacation. However, the manager belittled the importance of the inventory to the assistant, informed him that it is just a formality, it’s just a short leave of absence, and that it does not warrant all this hassle and effort to go over the entire inventory, and thus convinced him to only sign on the dotted lines. The assistant was convinced, and signed on the basis of trusting his manager (the assistant was not keen to apply the company policy). The manager acknowledged that there were no differences in stock and informed him orally, not in a written report that once he returns from his leave he would take charge over the showroom. Therefore, the assistant took charge of the showroom, and the manager travelled on vacation.

After the manager returned from his leave, two days went by and the manager did not ask his assistant to hand the showroom over back to him, as was agreed orally between them. And as soon as he asked the manager to do that procedure, the manager replied with: “I do not take charge of anything until after an inventory counting”!!! … Then, he raised a letter to the company’s main office to contact the showrooms management where he asked for an inventory committee to oversee the process to complete a showroom handover. The committee attended, oversaw the inventory counting and found differences in their numbers… The assistant was shocked and stated he was not aware of such differences and pleaded his innocence that he did not sell these items during the manager’s vacation period!!! Then the committee asked him; is not this your signature on the inventory record? To which he replied with “Yes, but it is just a formality”. The inventory committee informed him that as soon as he signed the records, he become responsible and was now accused of embezzlement from the company.

The assistant was obliged to pay the value of the stolen items, which he did not steal, and was relieved from his duties. This exact scenario happened with two others in the same way … The manager steals; the assistants pay the difference. Had the assistant applied the system and internal policies of the company, he would have protected himself from exploitation from such fraudsters. Later, the company made a surprise visit and an inventory counting of the same showroom, which helped uncover the manager’s misdemeanor, resulting in the company taking the appropriate action against him.

Lessons learned

While analyzing the incident, there were some lessons learned that must be shared, which are:

  • It is necessary to know the purpose of the policies and procedures that are developed and applied, and not just skip through them without applying. The employee must understand the policies and procedures assigned to him/her, or at the very least, ask colleagues if any point was unclear.
  • The company must analyze any fraud incident, dive into its root causes, and not take any measures without fully knowing these reasons, not as in the incident discussed in this article where the company only dismissed the employee(s) without analyzing the root causes of the incident.
  • The recurrence of the incident is indicative of a certain pattern of fraud that must be acknowledged and prevented from ever happening again. We noted in the incident the use of the same method with three different employees in the same showroom with the exact same manager.
  • Staff rotation helps detect errors, abuses and any differences in inventory as a result of the receipt and delivery process. The company did not have a policy to rotate its staff between its showrooms.

Conclusion

Policies and procedures are designed to ensure that work does not prevent the existence of trust among staff from applying these said policies and procedures. The case of fraud addressed in this article showed that trust could turn into an opportunity that maybe exploited. Without the presence of such an opportunity, the showroom manager would have been unable to hide the stolen items from the inventory and would not have been able to shift responsibility onto his assistant.