Employee Theft & Fraud

Based on EPIS, Inc., past successful investigative techniques, we are often able to expose careful hidden and difficult to detect fraudulent claims. Incorporating EPIS, Inc's exclusively structured interview process in the investigative services; it provides not only additional information, but a more complete summary to the investigation. Using our multi-dimensional approach to these issues, EPIS, Inc can more effectively solve these business problems and minimize exposure to loss.

Issues commonly trouble businesses today include:

  • Drug and Alcohol Abuse
  • Embezzlement
  • Management Fraud, Dishonesty, and Incompetence
  • Employee Fraud
  • Other Brach of Trust and Fiduciary Issues
  • Product Diversion
  • Theft of Proprietary Property or Information
  • Brides and "Kick-backs"
  • Conflict of Interest

Above are the list of investigations approach to solving these problems and eliminating the threat of litigation to businesses.

Did You Know

In today's industry employee, fraud is on the rise, from $350 billion in 1997 to an estimated $778 billion in 2004. Insurance Fraud is the second most costly white-collar crime in the our industry

Red Flags of Internal Fraud

Background of the perpetrator:

  • Excessive gambling or investment habits
  • Strong challenge to beat the system
  • Undue family pressure such as divorce
  • Overwhelming desire for personal gain
  • Jealous about the success of others
  • Is experiencing financial difficulties, or has a high debt load
  • Has close personal relationships with customers and vendors
  • Brags about winning money gambling
  • Secretive about their work
  • Previously involved with issues of dishonesty
  • Avoids taking vacation or sick time
  • Insists on performing tasks that could be and should be performed by others
  • Appear to be living beyond their means
  • Recent change in lifestyle
  • Feels their pay is not commensurate with responsibility
  • Recently demoted, received disciplinary action, or believes their job is in jeopardy
  • A wheeler-dealer attitude
  • Employee, or spouse, involved with a privately held business
  • Unconfirmed suspicions about a drug or alcohol problem

Profile of the victim business:

  • Lack of segregation of duties
  • Lack of physical safeguards
  • Lack of independent checks
  • Lack of proper authorization on documents and records
  • System permits overriding of existing controls
  • inadequate accounting system
  • A company with 100 employees or less
  • Has never taken any action to protect the company from internal theft
  • Has not punished past acts of dishonesty
  • Poor internal controls:
    • Does not monitor scrapped products or materials
    • Employee posting cash receipts and accounts receivable responsible for collecting same

Line of attack:

  • False disbursements
  • Kiting
  • Skimming
  • Improperly posting credits
  • Borrowing against accounts receivable
  • Creating fictitious receivables
  • Lapping
  • Diverting or reselling scrap and excess materials
  • Altering documents
  • Concealing or destroying evidence
  • "False exculpatory" (lies)
  • Voids and under-rings
  • Swapping checks for cash
  • Creating fictitious refunds and discounts
  • Charging theft to inventory

Red flags:

  • Increased number of adjusting journal entries
  • Shipping documents not matched to sales reports
  • Expenses charged to petty cash have risen dramatically
  • Cash refunds or charges to petty cash made without proper documentation or approval
  • Incomplete or false customer information
  • Sequentially number receipts or invoices are missing
  • Employees receiving gifts from customers or vendors
  • Inventory counts are altered to match perpetual inventory
  • Inventory shortages cannot be explained
  • Differences in the physical and perpetual inventory charged to cost of sales
  • False credits to inventory to conceal unrecorded or understated sales
  • No source documents to justify inventory write-offs
  • Returned merchandise not returned to inventory
  • Unverified write-offs to accounts receivable
  • Sales reports not matched to shipping documents
  • Customer always waits for favorite employee to serve them
  • High number of altered or voided transactions

Business operations:

  • Shortages in inventory cannot be explained
  • Variances in general ledger accounts cannot be explained
  • Vertical analysis of profit and loss is unusual
  • Increased cost of sales without explanation
  • Diminishing cash and cash flow
  • Increased accounts payable and receivable
  • Increasing reclassification of income and expenses

Investigating suspected fraud:

  • Protect any evidence (records) that could be destroyed
  • Move quickly and quietly
  • Retain competent, experienced counsel, certified fraud examiner, and auditor
  • Do not believe the perpetrator will ever tell you the entire truth
  • All employees involved with the dishonesty should be interviewed without notice
  • Organization should decide upon the penalties, termination? Prosecution?
  • Do not react emotionally
  • Do not reveal your suspicions to the perpetrator(s)
  • Do not change operational procedures until suspicion is confirmed
  • immediately protect Fidelity Insurance Coverage

Detection of fraud:

  • Investigate all customer complaints
  • Where segregation is not possible, diligently monitor
  • Require two signatures for payments over a specified amount
  • Insist the bank return canceled checks
  • Insist two people reconcile bank statements
  • Create the perception of detection
  • Compare receipts with deposits
  • Reconcile all accounts monthly (entries and canceled checks)
  • Review unusual endorsements on checks
  • Perform surprise cash counts
  • Compare credit memos by period
  • Match shipping documents, sales invoices, and customer orders
  • Match deposits between accounts
  • Use the computer to analyze: missing invoices by number, numerical sequence of documents, sales volume by employee, or returned merchandise by employee
  • Segregate incompatible duties, custody of assets and accounting for assets, and control over revenue and expenses
  • Require authorization for disposing of assets
  • Purchase Fidelity Coverage Insurance

Summary of the perpetrator:

  • The theft was easier to commit after the first time
  • The theft has been continuous
  • Is currently experiencing a high level of stress (concern for the consequences)
  • Most frequently it is the person you trust the most
  • Has the technical skills to pull off the theft secretly
  • The activity is clandestine
  • The activity violates the employee's fiduciary duties to the organization
  • Initially, they intended to repay the money "borrowed"
  • In the beginning, they usually kept track of the theft
  • Recognizes they will never be able to repay the money
  • The stolen assets are rarely recovered