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Trust but Verify (Editorial)

2 min read

Last week’s news that a local bank officer had been accused of embezzlement – Kelly Harbert, by One Bank & Trust of Little Rock, in a civil lawsuit – should serve as a reminder to all businesses: If you don’t trust an employee, he or she shouldn’t be on the payroll. And if you do trust an employee, you still need controls.

In the latest case – which we want to emphasize is still in the accusation stage, with absolutely no evidence presented and no criminal charges filed – One Bank claims Harbert had been making fraudulent loans for her own benefit "since at least March of 2010." That wording suggests the activity could have been going on longer, but if One Bank detected employee fraud in only a few months, it is way ahead of average.

A couple of weeks ago, the Association of Certified Fraud Examiners released its biannual study of occupational fraud, "2010 Report to the Nations." Its findings are consistent with earlier reports: "[T]he typical organization loses 5 percent of its annual revenue to fraud. Applied to the estimated 2009 Gross World Product, this figure translates to a potential global fraud loss of more than $2.9 trillion."

Unfortunately, the ACFE found, employee fraud lasts a median of 18 months before being detected.

According to its lawsuit, One Bank began to look at Harbert’s activities after receiving a tip from IberiaBank FSB about "unusual deposit activity" in an IberiaBank account that Harbert controlled. This is in keeping with the ACFE’s findings: "Tips were by far the most common detection method in our study, catching nearly three times as many frauds as any other form of detection." That includes internal and external audits.

We all like to think that our systems and processes are going to catch employee theft, but the experts say you also need to recognize the value of suspicions and to make it easy for employees to voice their suspicions. Tips generally come from inside one’s own organization, but an outside tip like One Bank received is not uncommon, according to the ACFE:  "[C]ustomers, vendors, competitors and acquaintances (i.e., non-company sources) provided at least 34 percent of fraud tips, which suggests that fraud reporting policies and programs should be publicized not only to employees, but also to customers, vendors and other external stakeholders."

Let someone else’s misfortune be your cautionary tale.

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