• Zach Clark, CPA, CFE

Burned in love, burned in business - the interrelation of impropriety

As we sat across the desk from a prospective client and he described how fraud had impacted his organization, his community, and himself, I could not help but think how similar the effects of fraud are to those of marital infidelity. Our prospect’s predecessor was the fraudster and, as the fraudster’s immediate replacement, our prospect’s words and demeanor were similar to those of someone working earnestly to win the trust of a victim of a past infidelity.

A recent article in the Wisconsin Law Journal titled: Fraud and Infidelity: A match made in heaven? also highlights this correlation. In the article, the author correlates the financial necessities of carrying on infidelity and the necessity of the cheater to keep these payments hidden from their spouse. If a spouse is removed from the financial goings-on, then secrecy may not be difficult, much like a business owner that is disconnected and putting full faith into an office manager only to later find out that the office manager was embezzling for years.

“A person who commits fraud is in a position of trust, just as a spouse is trusted to be faithful to the wedding vows. An employee is familiar with the operations of a department or the company as a whole, and is therefore able to effectively cover up a fraud. A spouse knows the family’s schedule and routine, and therefore is also able to conceal a pattern of cheating.”

“What can owners or managers do with the knowledge that fraud and infidelity have many points of similarity? Never, ever ignore signs that indicate your employees are dishonest, or you may be their next victim.”

But this conclusion begs the question: how can one become aware of these red flags in a key employee’s personal life?

One of the best ways to be alerted to these red flags is through the use of an anonymous reporting system. When things don’t add up, or an employee has a gambling problem, or has issues with drugs or alcohol, having a system in place to allow a co-worker to anonymously report this information to management greatly increases the chance of bringing these issues to light – and hopefully, helping the individual get the help they need while best protecting your organization.

With a well implemented anonymous reporting system you promote transparency and reduce the dependence on blind faith. For those seeking to repair the damage done by previous indiscretions having a system marked by full transparency is a necessary step to rebuilding trust and becoming a stronger leader moving forward.