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From the Vancouver Business Journal, September 2008

Local firms help businesses crack down on employee fraud and theft

 BY CHARITY THOMPSON of the VBJ

………………………………….

The economy is down. Busi nesses large and small are losi ng money. Bu t someti mes the losses just don’t make sense.

“A lot of times (employers) thi nk it’s from a bookkeeping error,” said Sam Nigro, president of Va ncouver-based Loss Prevention Grou p. “they trust their employees far too much.”

In his 20 years as a loss prevention consultant, Nigro has worked about 2,000 cases includi ng bookkeepers who pocket company deposits for drugs, convenience store clerks who ring up $500 per shift in fake retu rns and ma nagers who lift thousands of dollars from company safes. The list goes on.

“Employees know what’s happening, who’s stealing, but no one wants to say anything,” Nigro said. The Association of Certified Fraud Exam iners esti mates businesses, government organizations and non profits lose 7 percent of their annual revenues to fraud i n the United States. That tra nslates to about $994 billion each year.

The association published a study of data from 2006 to 2008 on nearly 1,000 cases of occupational theft and fraud. Fifteen percent of the cases came from the banki ng and financial services industry, followed by govern ment services at 12 percent and health care at 8 percent.

In the study, the losses per case increased directly with a perpetrator’s annual income. Twenty-nine schemes involving employees who earned more than $500,000 a year had a median loss of $50 million. The overall median loss was $175,000, but more than 25 percent of the cases involved losses of at least $1 million.

Perpetrators acting alone in most of the cases, cause a median loss of $115,000. But schemes involving two or more people caused median losses at least four times as large.

Tiffany Couch, a forensic accountant and principal of Vancouver-based Acu ity Group, said occupational fraud and theft cases drove 75 percent of her work i n the last year. Most of those cases involved losses of more than $100,000. “I meet clients in their worst moment, when they wonder if they can trust anybody,” Couch said.

Most of those clients come from small businesses, which the ACFE said have the high est median loss rate per case at $200,000.

“It’s the small businesses that suffer the most and generally see the greatest impact,” Couch said . “Small business owners are so grateful to have a good bookkeeper that they give too much control to them.”

Most people wouldn’t steal from anemployer, Nigro said, unless a need presented itself with an opportunity and a rationalization for the crime.

Perpetrators’ rationalizations can range from needing to pay major medical bills or feeling cheated by an employer to simply believing they will put the money back.

“Some say it’s almost like a drug,” Couch said. “Maybe they have a ‘real ‘ reason for stealing the first time, but they don’t get caught.”

And the pattern continues. Thieves can be hard to spot because they can look like dedicated employees, Tiffany Couch and Sam Nigro said. They often appear helpful and are likely to a rrive early, stay late and avoid vacations. But they also tend to live obviously beyond their means and keep tight controls on their work.

Once a thief is spotted , confessions tend to come quickly in interviews with a trained investigator.

Nigro and part of his eight­ person staff are trained to spot deception in body language and speech patterns and, without coercion, obtain written and videotaped confessions that can be used in prosecution.

“We’ve had people confess to stealing $50,000 to $100,000 and hug me when they’re done,” Nigro said. “It’s much easier to confess than to continue lying.”

Nigro and his general manager, Brent La rson, recommended contacting private investigators in cases of business theft and fraud because the time police can spend on such cases is often limited.

“Close loopholes that give people the opportunity to steal.” Larson said. “The gray area is where theft comes in.”

Charity Thompson can be reached at cthompson@vbjusa.com.

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