A few weeks ago I wrote a blog about “smelling a rat” – suspecting fraud or inappropriate behaviour of a person, especially (but not only) in voluntary organisations. (See the original blog here: https://tinyurl.com/y9z3to66). Since then a number of people have spoken to me about their experiences and particularly why organisations don’t act when they become suspicious.
This article is about why organisations and/or individuals in them fail to recognise suspicious behaviour and why they often turn a blind eye and fail to pursue legal remedies.
What is inappropriate behaviour?
Inappropriate behaviour can manifest itself in many ways.
The most obvious is stealing money – often called misappropriating. Here are some ways people do this:
· Moving money from the organisation account to an account where they benefit;
· Taking cash – very common where cash is collected at things like food stalls, fetes, bring’n’buy sales, fund raisers etc;
· Creating false invoices;
· Seeking reimbursement for anything which is not justified especially for things where there is no receipt;
· Creating false receipts and seeking reimbursement;
· Arranging with other people to receive payment which is then transferred to themselves without others knowing;
· Arranging for family members to receive unjustified payments;
· Taking cash payments for goods, services, memberships etc and not banking the funds;
· Transferring money from the organisation account and recording a false recipient and false documents;
· Taking property from the organisation and perhaps selling it without approval;
· There are many more!!
Another type of behaviour is using a role or position to gain an advantage that is dishonest, unfair, inappropriate, or outside the law or legislation or rules of the organisation.
· Orchestrating for their own business or company to receive a benefit, usually payment;
· Orchestrating for a family member or close friend to receive benefit;
· Arranging for the organisation to employ a spouse, partner, family member or close friend;
· Varying rules or requirements of anything the organisation does to benefit someone when other people cannot benefit similarly; (For example, changing the rules of a competition to benefit certain people – more common than you may think)
· When employing or selecting people for roles, not treating everyone in exactly the same way in the process and not being objective.
Other inappropriate behaviour:
· Using undue influence to make changes to rules or guidelines or constitutions which either take away some rights from some people, or give rights or privileges to members at the expense of others.
· Not providing reports or updates to the board, committee or membership;
· Failure to advise of circumstances, events or actions which the organisation should know about;
· Bullying or discriminating against people for any reason;
· Failing to recognise risk or consider risk or failing to advise appropriate people (like the board) of risks.
Why don’t organisations recognise suspicious behaviour?
People who are dishonest are usually clever. They know that the more they are liked and trusted, the less likely it is that they will be suspected. They ingratiate themselves with the organisation’s “power brokers”.
This is a crucial understanding. It’s so important that I’m going to write it again to make sure you get it. They know that the more they are liked and trusted, the less likely it is that they will be suspected.
Other people “fly under the radar” and go to great lengths not to draw attention to themselves. This is very common in workplace fraud.
Law enforcement people will tell you that a significant number of people who are fraudulent, are the most trusted, most loyal and most liked people. That is their strategy! People who steal from their employer are very often the most trusted employees. Same with voluntary organisations.
Because they are so trusted, they create an emotional “shield” around themselves so that others find it hard to comprehend that they may be doing anything wrong. They work on building this “shield of trust” because it literally becomes their protection.
These people also usually (but not always) are very good at covering their tracks to remove suspicion. They usually have a plausible story to justify whatever is being questioned and the stories nearly always have an emotional base, (“my partner has been really unwell”) a workload emphasis, (“I have been so busy”) or a technical reason (“the computer crashed and the bank login stopped working”).
The most common words that are used are these “We would never have suspected him/her. He/she was such a nice person”. That’s why organisations don’t recognise the behaviour!
Why don’t suspected people get challenged?
People don’t get challenged because other people nearly always like them and can’t imagine that they would be dishonest! They are also really good at justifying, making excuses and telling plausible stories. And so people don’t ask enough questions, or ask the right questions.
A common series of event is that one person “smells a rat” and asks some questions. The offending person often then plays the emotional card and accuses the questioner of challenging the “offender’s” integrity. Others then come to the “offender’s” defence (because they trust and like them) and the questioner is made to feel that their questions are out of order. Often the “offender” then attempts to discredit the questioner to isolate them – this usually happens outside the meeting environment and can become very nasty.
Many people have gone for literally years constantly building trust and likeability, …… and stealing.
Why don’t organisations go to the police or authorities or seek legal remedies?
People who steal or are fraudulent know that the vast majority of cases are never reported and that nothing happens except that they leave the organisation. A study in the UK in 2015 found that around 85% of fraud went unreported. How can this be so? There are several reasons.
· The first is plain and simple embarrassment that they were “taken for a ride” by the offender. It’s difficult to admit that you were blind to what later, in retrospect, often seems obvious. The signs are nearly always there when you go back and look.
· The next reason is that people on committees or boards understandably don’t want to admit to not being diligent. It’s very easy for people who were not involved, or not on the committee or board to say that those who were should have been more diligent but it is often not quite that simple. Nevertheless, when fraud is identified, and the facts are made public, there will be inevitable “finger pointing” and so often people will do almost anything to avoid having to admit that they were not diligent – and the easiest way is to sweep it all under the carpet.
· Fear is the next reason – fear of being held responsible. It’s not responsibility for the fraud, it is responsibility for not noticing what seems obvious later, or for not acting quickly enough or not acting in the right way. Fear may also manifest itself as fear of damage to reputation or fear of loss of status or title or privileges.
Fear is a powerful driver of human behaviour.
· The next reason is the eternal optimistic view that we should “put it behind us” and “put it down to experience”. This tends to happen when the amounts involved are relatively small although I have heard of this reaction when the sums have been many tens of thousands of dollars. My own opinion is that in these cases, the real reason is one of those listed above.
The leopard doesn’t change its spots – so the saying goes.
The common view among law enforcement people, and forensic accountants who specialise in identifying fraud, is that people who steal have nearly always done it before, or if not called to account, will do it again. Because as the British research shows, 85% of frauds are never reported, it means that the perpetrators just move on to another target.
I know of a situation where a dishonest treasurer stole from 5 organisations before one reported him. None were aware of his previous frauds.
The big dilemma
There is a dilemma, and it’s a big one. If a person is exposed, what can happen is that they “do a deal” so the organisation or their employer (if it’s a work based fraud), does not go to the police in return for something from the offender. It could be a partial or total recompense of the money or goods they stole, or it could be blowing the whistle on other dishonest activity they claim to know about, or it could be giving information about flaws in the system that allowed them to commit the fraud.
They will sometimes offer something in return for a legally drawn up confidentiality agreement meaning that they cannot be legally pursued in the future.
I am not a lawyer, but my understanding is that broadly, a confidentiality agreement binds a board, for instance, as well as future directors, from pursuing any criminal remedy in the future, depending of course on the specific detail in the agreement. If they do, then the offender can pursue them as a civil (as proposed to a criminal) matter.
This leaves the offender able to do it again at another organisation.
So the dilemma is – do you pursue the matter and seek justice in the courts, and get nothing in recompense, or do you get what you are being offered by the offender, and “set them free” to do it again to someone else? It’s a very big dilemma.
It is important to be aware, that even if you do go the police, they are not necessarily obliged to act. In most jurisdictions I am aware of, it would depend on two things – the level of seriousness – the amount of money or goods that were taken – and/or the number and severity of everything else on the police “plate” at the time.
Remember, I am not a lawyer, but my research leads me to understand that it is also worth being aware of the fact that if a confidentiality agreement is in place, it does not stop the police pursuing an offender but it may stop the organisation from providing information to the police unless compelled by a court.
Be very clear about your facts and suspicions before “going public”. The last thing you want or need is to accuse someone who is innocent. Make sure you do your homework diligently and document everything you notice or discover, then lay it before another person or people and possibly the police before you act. Protect yourself and the reputation of innocent people!!
Theft and fraud occur more often than you may think. Most offenders get away with it. If you suspect something, seek legal advice sooner rather than later and find out exactly where you stand as an organisation and as individuals.
Be clear about one thing – if you let them “get away with it”, they will probably do it again to someone else!
David Julian Price
The Master of Effective Meetings
Tel: Australia: 08 9383 9499 or 041 8888 018
International: +61 8 9383 9499 or +61 41 8888 018
Please Note: The author is not a lawyer and accepts no responsibility for anything which occurs directly or indirectly as a result of using any of the suggestions, procedures or information detailed in this article. All suggestions and procedures are provided in good faith as general guidelines only and should be used in conjunction with appropriate advice, relevant legislation, constitutions, rules, laws, by-laws, and with reasonable judgement.