Why Companies Can Be Easy Targets for Fraud

In order for companies to effectively safeguard their assets, it’s beneficial to understand the critical mistakes made by corporations that have been victimized. After 30 years of performing white collar crime investigations, we’ve become all too familiar with the most common pitfalls that typically accompany fraud. 

 1.    A Lack of Awareness

Most executives prefer to believe that their management team would never embezzle funds, take kickbacks or sell highly confidential or proprietary information to competitors.  Understandably, it’s disconcerting to even consider the possibility that one of their trusted executives would be willing to commit a crime. 

However, as we’ve all learned, white collar crime does occur, and can have devastating financial and legal consequences.  Additionally, it’s commonplace to find that the perpetrators are long-term, highly trusted individuals.

  2.   An Over-Reliance on Accountants to Uncover Fraud

Many CEO’s feel that their companies are protected from fraud because they wrongfully assume that their accountants will detect most forms of white collar crime.  Unfortunately, this is a dangerous assumption to make and one that has proven extremely costly for many companies.

Accountants are typically concerned about making sure that tax obligations are met, financial reports are prepared on time, and bottom line numbers are balanced.  If the corporate criminal is devious and subtle in their endeavors, the odds of an accountant uncovering the theft are quite remote.

In one investigation, we found that the CFO had been fraudulently billing his employer over $180,000 a year.  He incorporated a “dummy” company, printed invoices, rented a mailing address, then forwarded and approved the bills when they arrived each month.  This went on for eight years before anyone suspected a problem, and it was not detected by accounting personnel.

Had the CFO done something blatant, like diverting company funds to his personal account or writing checks to his own name, I’m sure the accountants would have noticed it.  However, when fraud is committed within the system, it tends to look exactly like standard operating practices and won’t typically be red flagged.

  3.   Inadequate Policies and Procedures

Most companies that incur fraud-related loss don’t do enough to deter it from happening in the first place.  It’s important to remember that a good percentage of employees become dishonest after being exposed to the loopholes and opportunities that exist in their respective companies.  This blatant opportunity, combined with the temptation of pocketing a good deal of [tax free] money, oftentimes causes marginally honest employees to become company thieves.

From the standpoint of preventing employees from going bad, as well as having legal remedies available after a crime is uncovered, it’s prudent to adopt formal company policies and procedures regarding:

 •           Employee integrity and ethics.

 •           Soliciting or receiving gifts, gratuities or incentives.

 •           The proper safeguarding of  proprietary information.

 •           Working for a competitor while employed

 4.    Failing to Perform Comprehensive Background Investigations

One investigation that illustrates the importance of conducting comprehensive background investigations involved a purchasing executive who was shaking down vendors and receiving upwards of $300,000 a year in cash and gifts.  We caught him by setting up a sting operation, where one of our investigators posed as a vendor and documented the purchasing executive asking for an 8% kickback on each order he placed. 

When we confronted him with our evidence, the executive confessed.  During the interrogation, the purchasing agent admitted to falsifying his résumé and omitting several facts, including a previous employer that had terminated him for taking kickbacks.  The executive also admitted that he owed over $40,000 in credit card debt and had declared personal bankruptcy just two years before accepting his current position.

All factors considered, this was certainly not the type of individual you’d want in a responsible position.  However, none of these facts ever came to light prior to him being caught because the company neglected to conduct a comprehensive background investigation.  If they did, they would have uncovered some, if not all, of these relevant facts and certainly would not have hired him. 

Playing fast and loose with the information contained on résumés is not unusual.  We find that between 12% – 15% of the white collar candidates we perform background investigations on have deliberately falsified or deleted critical information from their resumes. 

 5.    Lack of an Effective Way for Employees to Report Illegal Activity

When it comes to uncovering internal theft, this is perhaps one of the most effective, yet overlooked solutions available to corporations today.

Have you ever wondered why law enforcement agencies almost always set up a confidential 800 number after a serious crime has been committed? Because a high percentage of cases are successfully concluded after confidential tips are phoned in by informed sources.

The same holds true for the private sector.  Our 800 Hotline number for example, has received calls regarding dozens of cases of white collar crime, that otherwise would not have been detected for months or even years.  In fact, some of our clients, after being notified about a fraud, instinctively reacted with shock and disbelief.  Only after checking out the information did they come to the painful realization that the caller’s tips were right on the money.

The reason an employee tipline is so effective is because it’s almost impossible to keep illegal activity a secret from co-workers.  There are always others who know, or at least have good reason to suspect, that another employee is committing a fraud.  The problem arises when the employees who possess this information fail to come forward because of an inherent fear of being exposed and having the culprits seek revenge.

That’s why a successful tipline program will offer callers anonymity, therefore guaranteeing them that their identities will never be revealed.  Additionally, callers should be able to speak with experienced security professionals, not switchboard operators, who will know how to fully debrief them, i.e., asking all the right questions, as well as developing a rapport, so callers feel comfortable providing the information. 

One caveat however:  no one should ever be punished or rewarded based solely on a call.  The information should be corroborated before any action is taken, so no one could use the tipline as a means to perform a character assassination on a co-worker they dislike.

Posted in Cybercrime, Embezzlement, Fraud, Home, White Collar Crime

Finding Cost Effective Solutions in a Tough Economy: It’s Time to Think Outside the Proverbial Box

It’s no secret that the warehousing and transportation industry has been hit hard with rising costs and shrinking profit margins. With experts projecting an extended economic recovery, logistics executives are struggling with  some difficult financial decisions.

The knee jerk reaction of some when it comes to asset protection  has been to arbitrarily cut spending.  However, many companies have learned a painful lesson, which is this:  in tough economic times, security risks can be significantly higher than in normal times.

Because employees are now faced with the harsh realities of wage freezes, overtime elimination, benefit reductions, and possible job cuts, a percentage adopt the mindset that puts them in an adversarial position with their companies. When faced with rising personal expenses and reduced income, many look for an alternative means of financial support.

Employees can become resentful and sometimes even vindictive as they perceive management’s cost cutting initiatives not as a financial necessity, but as a personal attack. A percentage of the workforce may then adopt the mindset of “I’m going to do it to them before they do it to me.”  Consequently, many companies have experienced an increase in both the number of security related problems they’ve incurred as well as an escalation in inventory theft.

One distributor that recently contacted us had experienced their highest single spike in inventory shrinkage in the last 15 years.  Another company was recently victimized for over $240,000 in theft related losses by a group of long term employees who admitted they had never resorted to dishonesty prior to the last six months.

What oftentimes enables these types of crimes to take place are the reductions that some companies have made to their loss prevention programs, which have created new opportunities for individual theft, fraud and collusion, not to mention product tampering and sabotage.

Many senior executives have  asked me the best way to balance  the pressures of making needed cost reductions and the increased risk of security threats that many companies find themselves facing.  My response to this question is to search for innovative ways to reduce their security expenditures without increasing their exposure to security threats.

One  illustration of how this can be accomplished involves a company that has eight locations and one new facility on the drawing board. After carefully analyzing their security expenditures, we questioned why they intended to spend the sum they budgeted for the proposed video system in their new distribution system.

The cost for the CCTV system was, in our opinion, approximately $32,000 more than we thought it needed to be. As it turned out, this cost factor was being driven by their desire for pan/tilt/zoom (P/T/Z) cameras. When we questioned why they thought they needed them, rather than using fixed position cameras, it became apparent that there was not a well thought out reason for their selection.  Essentially they were going in this direction because that’s what they had in their existing facilities.

We pointed out the inadequacies of using Pan/Tilt/Zoom cameras in their type of operating logistics. After listening to our rational, they agreed with our logic. We also explained that fixed cameras were not only a fraction of the cost, but how they would actually provide them with a higher level of security.  Avoiding P/T/Z cameras would also save them money on repairs, being that fixed cameras have fewer moving parts and require far less service.

By utilizing the cameras we recommended, as well as substituting the type of digital video recorders their vendor had proposed with a model that we knew was of equal quality (but without some bells and whistles that we considered unnecessary), we were able to cut their capital investment by more than 52%.

Another illustration involved a company that was spending in excess of $2.8 million dollars a year in guard service  for their facilities in North America. After a study of their operating logistics and visiting several of their sites, we explained that all their facilities could be effectively protected and monitored from one central location if they utilized the right technology and security practices. The savings, even with the investment needed for the new technology, will exceed $1 million in the first year alone.

In a difficult economy, necessity does demand innovation. Rather than arbitrarily cutting budgets with a broad ax, which can end up costing far more, savvy  executives have learned that there are oftentimes ways to strategically reduce expense without increasing risk.

Posted in Blue Collar Crime, Home, Uncategorized, White Collar Crime

Anatomy of a Theft: How $182,000 of Inventory Disappeared

Here’s an actual case history that resulted in a distributor losing over $180,000 of inventory. The methodology was simple, yet effective. By taking advantage of this company’s rapid growth and lax security controls (both of which created opportunity), a devious checker disproved the old axiom that crime doesn’t pay. Reality check: crime pays quite well, which is why it occurs so frequently.

OVERVIEW:

This distributor’s trucks would be loaded during the night shift. In the morning, company drivers would make their deliveries.

When this company shipped product, labels would be applied to the outside of each case picked. Management felt comfortable that extra cases being placed onto trucks would be noticed because they would not have an affixed label. In actuality, it wasn’t difficult to circumvent the system.

By printing duplicate labels, (if questioned, the checker would claim that some of the original labels did not print well, were damaged, or lost) he was able to have extra, unmanifested boxes placed onto the trucks of the drivers he was working in collusion with.  These truckers were able to sell the overloaded product at a steep discount and still make a handsome profit. In no time, the three employees were pocketing more than $10,000 a month in cash.

Management had no idea that they were losing this quantity of product until they took an inventory. The Director of Distribution initially balked at the possibility of theft. However, when the results of the next inventory indicated even more shrinkage, he realized that he could no longer remain in denial.

WHY THIS COMPANY WAS EASILY VICTIMIZED

(1) Although this company had purchased an expensive video system, the dishonest employees knew that no one ever watched the monitors or viewed recorded activity. Additionally, the cameras were not positioned strategically, nor was the right equipment purchased. The bottom line was that the video system didn’t prevent, or even slow down, the ongoing theft activity.

(2) The company failed to provide a risk-free way for employees to report confidential tips. Management assumed that their “open door policy” would be sufficient for workers to report illegal activity.

It was later determined that other workers knew that this checker was stealing, but kept this information to themselves. They were concerned about their identities being leaked if they confided in company executives. Only after the dishonest workers were apprehended did the employees come forward and reveal what they had known all along. If this company had an outsourced 800 tip-line that offered employees complete anonymity, the employees said they would have reported the dishonest checker.

(3) The company did not have an effective security auditing program that prevented and detected shipping dock collusion. Had they maintained periodic monitoring of their drivers and checkers via unannounced security audits, the thieves would have probably been exposed long before the thefts mushroomed into a six figure loss.

Posted in Blue Collar Crime, Fraud, Home, Supply Chain Security

4 Strategies for an Effective Employee Hotline Program

Honest employees, who don’t want to work alongside thieves, substance abusers and other unsavory types, will oftentimes not come forward because they’re fearful about getting dragged into a potentially uncomfortable or even dangerous situation.

This fear factor is not completely unfounded. In fact, there is an actual term for it: “whistleblower syndrome”. There have been hundreds of cases of employees receiving threats, having their property damaged and even being assaulted after informing management about a dishonest coworker.

However, companies cannot afford to be naive and unaware about illegal and unethical activity taking place. White and blue collar employees who commit fraud, embezzlement or inventory theft, as well as harassment or discrimination can easily cost their companies six and even seven figures.

Workplace substance abuse can be equally costly. One distributor was sued for over two million dollars after a worker who tested positive for cocaine caused a serious injury to a coworker with a forklift. Prior to trial, statements were taken from an array of employees who testified that drugs were widely used and sold inside the distribution center. Fearful of the consequences, the distributor agreed to a significant settlement with the injured worker rather than go to court.

Confronted with these realities, it’s imperative that management open up a line of communication with their workforce. To be effective however, this communication line must make the employees feel safe and secure. Otherwise, it will not be nearly as effective as it needs to be.

Following these 4 guidelines will dramatically increase the success of your hotline program:

  • Offer Callers Total Anonymity, Not Just Confidentiality. The difference is that offering confidentiality means callers have to trust that you won’t reveal their identity. However, if you provide anonymity, i.e., you never require callers to provide their names, you’re giving them the security that they want and therefore increasing the odds of getting them to tell you what they know.
  • Outsource. It’s a proven fact that employees feel far more comfortable speaking with someone who won’t recognize their voice, speech pattern or accent. Additionally, callers prefer to speak with experienced professionals who routinely deal with these types of security related problems.
  • Promote It Positively and Consistently. You can avoid the “Big Brother” syndrome if you carefully word your posters and handout materials so they emphasize the benefits (which are many) of working in a theft-free, drug-free environment.
  • Talk About the Program As Often As Possible. During new employee orientations and communication meetings take some time to explain how the program operates. The more employees understand how the program works, the more likely they’ll be to use it when they become aware of illegal or unethical activity.

Posted in Blue Collar Crime, Home, White Collar Crime

Is Your Company at Risk to Cybercrime?

Cybercrime can literally be launched from any place on the globe. Unauthorized entries into corporate servers and networks can result in fraud, the theft of proprietary information, the misappropriation of company funds, as well as highly destructive and costly sabotage.

There are generally three categories of those who illicitly seek to penetrate corporate computer systems.

One group, which has grown significantly, is motivated by political or philosophical beliefs. They have vendettas against certain corporations or industries. You’ve seen groups such as these staging protests at national and international economic summits. Taking their beliefs to an extreme justifies their efforts to sabotage networks and data communications.

Another group of hackers, sometimes referred to as “script kiddies”,  are predominantly driven by mischief. Hacking into servers and websites, and then defacing them, is in essence cyber-vandalism. To many, it has become a game of matching wits – theirs against corporate or government IT experts who are entrusted with protecting networks.

A third category of attackers is driven by greed, and in certain respects can be the most dangerous form of hacker. In many cases, they are highly sophisticated, well financed and have successfully stolen classified data from government, organizational and corporate websites and networks. In fact, there are international crime organizations specializing in cybercrime as well as solo “cyber guns-for-hire” who will attempt to penetrate a corporation’s network for the right price.

With the downturn in the economy, company employees have become another area of risk. One investigation involved a company executive who became vindictive as he witnessed the value of his stock options plummet. As a personal vendetta directed at senior management, he accessed highly confidential files, including customer lists and marketing plans, and sent them to a competitor.

Experts fear that for every cyber related fraud, theft and embezzlement that is uncovered, there could be as many as 80-100 crimes that go completely undetected.

Assessing Your Risk

Here’s a basic diagnostic self-evaluation that can help you evaluate just how vulnerable your server, network, proprietary data and internal communications may be:

  • Do you, at least once per month, verify that your data is actually being backed up the way you think it is?
  • Are passwords used by your employees a minimum number of characters and numbers (or are they relatively easy to crack because they consist of nicknames, birthdays, etc.)?
  • Are employees automatically required to change their passwords at least three times per year?
  • Does your company regularly update your operating system and software packages with the most up-to-date patches?
  • In the last 12 months, have you had experts perform a penetration test where they attempt to deliberately circumvent your firewalls and hack into your servers?
  • Is all company e-mail encrypted?
  • Does your company utilize effective intrusion detection products that will help detect, identify and stop unauthorized access?
  • Have you analyzed your network architecture to identify vulnerable points of entry for viruses?
  • Is your server in a highly secured room, protected by controlled access electronics, alarms (intrusion and temperature) and video equipment? If so, are the security clearances periodically reviewed to determine whether modifications are needed?
  • Do you have the ability to uncover employees sending damaging information from your company’s e-mail systems?
  • Does your company’s disaster recovery plan incorporate storing backed up data at an off-site location and making contingency plans for employees to work elsewhere if they can’t get to company offices?
  • Are employees given orientation and training regarding protecting company networks and following established security policies?
  • Are comprehensive background investigations performed on candidates and employees who will have access to classified data?
  • Are there follow-up background investigations conducted when employees are transferred or promoted into high security positions?
  • Is there a confidential 800 number available and effectively promoted for employees to anonymously call if they suspect or know of illegal or unauthorized activity by a co-worker, vendor or contractor?

If you haven’t answered yes to at least ten of these questions, your company may well be an easy victim, and it’s probably time to take action.

Help determine your risk factor by taking this confidential assessment — only you will be able to view the results. http://www.danbeeinvestigations.com/fraud-risk-assessment

Posted in Cybercrime, Home, White Collar Crime

Corporate Fraud Still a Significent Problem

In one confidential survey, nearly 25% of the companies responding revealed that they had been victimized by some type of fraud within the last 12 months. Thefts of intellectual property are on the rise as well. An estimate from one study puts that loss alone at more than $60 billion.

The old axiom that crime doesn’t pay has been repeatedly proven wrong. The truth of the matter is that crime does pay, and it pays quite well. To add insult to injury, the culprits oftentimes don’t pay any taxes like legitimate wage earners.

Theft of proprietary information, embezzlement, the misappropriation of company funds and vendor kickbacks are only some of the ways that white-collar criminals strike today.

It’s always difficult for top management to accept the idea that a high level colleague could be bilking their company. While it’s understandably difficult to face this reality, executives who go through denial oftentimes pay a high price for not at least considering the possibility that there could be a problem and looking into it.

Many CEO’s assume that their firms are protected from fraud because their financial professionals will uncover any type of impropriety. This however, is typically not the case. Accountants and auditors can only examine so much quantitative data. Additionally, financial experts are usually kept busy making sure that tax obligations are met, reports are prepared on time and bottom line numbers are balanced. If the white-collar criminal camouflages the fraud so it appears to be standard operating procedure, the chances of being caught are not very good.

This is best illustrated by one individual who had defrauded his company out of several hundred thousand dollars via a simple, yet effective scheme.

In his position, he had responsibility for approving invoices from an array of vendors for various goods and services. Once an invoice left his desk with his initials, it was processed for payment. His first step in the fraud was to set up a “shell,” i.e., a nonfunctioning company whose sole purpose was to be used for the scam. Next, he rented a mailing address in another city and established a local telephone number that forwarded calls to an answering machine at his home. The next step was to print up legitimate looking company invoices and envelopes.

He began forwarding invoices to his company for nonexistent financial and insurance consulting services. Initially, he treaded lightly, keeping the invoices relatively modest. However, after seeing that no one questioned the bills, he began increasing the amounts and sending them with greater frequency. Within 3 months, he was defrauding his firm out of more than $5,000 a week. This went on for more than two years before anyone even remotely suspected a problem.

Unfortunately, the opportunity to score big creates a great deal of temptation. These crimes occur more frequently than most realize. However, make no mistake. Companies are being victimized with alarming frequency and experts expect the problem to get worse.

Avoid this Critical Mistake if You Suspect Fraud in Your Company

Never confront a suspect unless you have strong evidence that they’ve committed the crime. Although the first inclination on the part of some CEO’s and CFO’s is to speak one on one with the co-worker, this is definitely not a good idea.

One senior vice president admitted that one of the biggest mistakes he ever made was to think that he’d elicit a remorseful confession from a purchasing executive by giving him the opportunity to cleanse his soul. After explaining why he suspected that the executive was guilty of accepting kickbacks, the senior vice president was shocked when the co-worker vehemently denied any wrongdoing. While the senior vice president had strong circumstantial evidence, he had not conducted a proper investigation and his facts were not complete or conclusive. The purchasing manager’s aggressive response forced the senior vice president to back pedal.

The company was subsequently unable to take decisive action because the senior vice president had decided to short cut the investigative process and prematurely confront the suspect. To make matters worse, the purchasing executive was then able to destroy evidence of his wrongdoing once he learned he was under suspicion.

When there are indications of fraud, conduct a thorough investigation. The objective is to develop enough factual evidence so that an unbiased determination can be made as to whether there was unethical and/or illegal conduct. Always keep in mind that the burden of proof is on the company to show guilt, not on an employee to prove their innocence.

 

 

Posted in Home, Uncategorized, White Collar Crime

Safeguarding Your Company from Workplace Violence

An ABC news article quoted Dr. Paul Ragan, senior consulting psychiatrist at Vanderbilt University Medical Center’s department of psychiatry, who stated, “Suicides and violence can increase in economic hard times. If anybody talks about an experience where they’ve been humiliated and they have feelings about it, it needs to be taken seriously. The workplace is often a source of disappointment, and is the unfortunate recipient of the person’s rage.”

While there’s no way to guarantee that your company will be 100% safe, there are several measures that can dramatically reduce your risk factor:

1. Educate your managers and supervisors: There’s no substitute for realistic, hands-on training. It’s important that you teach your key people how to recognize and respond to the early warning signals of trouble that normally precede an act of violence.

Training should also include role-playing scenarios where managers and supervisors are given the opportunity to temporarily put themselves into the mindset of the participants.

2. Conduct comprehensive background investigations on new hires: Companies should require new workers to undergo a background investigation. Looking into an individual’s history can uncover convictions for assault, manslaughter, rape or homicide. Equally important would be criminal convictions for carrying an unlicensed firearm.

3. Perform pre-employment and probable cause drug testing: As mentioned earlier, workers predisposed to acts of violence can be pushed over the edge if they use drugs or alcohol at work. Train your managers to look for physiological symptoms or impaired work performance.

Additionally, be attentive to the actions of parties involved in an argument after the encounter appears to have subsided. If one of the participants has a few drinks or uses drugs during lunch, they may return to work seeking revenge.

One of our clients nearly lost an employee when another worker returned from break under the influence of alcohol. The two workers had been arguing. However, the shift supervisor thought he had put an end to it after separating and verbally warning both employees. While at a local restaurant during lunch break, one of the participants worked himself into a frenzy while consuming several drinks and discussing his earlier confrontation with the co-worker.

He returned to work and attacked the other employee from behind with a hunting knife, repeatedly stabbing him. The injuries put the employee into intensive care for weeks and nearly cost him his life.

4. Set up an effective Hotline program: Offering your work force a means to communicate potential problems can be an invaluable tool. However, it’s only going to work if your employees feel completely comfortable using it.

It’s unrealistic to expect concerned employees to use the company “open-door” policy to report a co-worker who has, for example, a semiautomatic handgun in his locker or car. The average worker will be justifiably concerned that their tip will be leaked and find its way to the perpetrator, who will then seek revenge on him or her.

However, if employees have a safe, risk-free option available, many will take advantage of it.

5. Establish formal procedures for reporting incidents: Make certain that your managers and supervisors understand the importance of communicating a potential problem. All too often, key personnel will witness a dispute where one or several parties make threats. However, because no altercation occurred at that moment, the incident is downplayed and dismissed. A supervisor may wrongfully assume that he permanently diffused the hostility.

This is a mistake, because in many of these cases, there is a delayed reaction and serious injuries are subsequently sustained by one or more of the participants. If a provoked or drug-induced employee subsequently attacks a co-worker hours, days or even weeks after an initial incident, the company may be found liable.

Threats should never be taken lightly. Formal company guidelines should be established that require any form of threat to be documented and reported to the human resources, legal and/or loss prevention departments.

6. Establish proper procedures: Examples include:

• After a worker has been terminated, especially if the separation takes place under less than amicable circumstances, formal notification should be immediately given to those who oversee access to the building or grounds, such as uniformed guards, receptionists and shift managers.

• Electronic access cards, as well as IT network passwords and alarm codes should be promptly voided. Emergency call lists should be modified to reflect the change of employment status.

If exterior door keys are not electronic and cannot be voided via PC, or if the keys are the type that could be easily duplicated, the locks should be immediately changed.

Preferably, these steps should be implemented within minutes of the individual’s departure. In many cases where a serious injury has been inflicted or a death has occurred, companies failed to complete these tasks in a timely manner and allowed an unnecessary window of opportunity to exist.

• Eliminate uncontrolled entrances to the building.

In many facilities, anyone can enter the reception area or interior door(s) leading to company offices. To control access, an electronic strike should be installed on either the exterior or interior door(s) [depending on traffic flow and building layout].

It’s a good idea to equip the receptionist or warehouse office with a concealed, silent panic button (similar to what bank tellers have at their work stations) for summoning immediate assistance in the event of a life threatening situation.

In a distribution environment, it’s commonplace to find metal entrance doors without windows used by employees, truckers or service personnel. Workers become accustomed to opening a locked door whenever someone knocks or rings a bell, claiming to be an employee who may have forgotten their access card, or a contractor having legitimate business there.

One distributor lost hundreds of thousands of dollars of inventory and had several employees pistol whipped when an employee allowed access to intruders claiming to be a late arriving truck driver. After opening the entrance door to the warehouse one evening, the crew was held at gun point while the intruders loaded a tractor trailer with inventory.

Install a closed circuit television camera and intercom outside warehouse entrance doors so proper verification can be made prior to opening the door. Also, implement a formal policy that controls access times and establishes proper means for outsiders to validate themselves with proper identification.

• Equip supervisory and uniformed security personnel who normally roam throughout the warehouse with wireless panic buttons as well as radio units, so they can instantly communicate with each other as well as the alarm company central station in the event of a serious threat.

• Make certain that employee parking areas are well lighted. In high crime areas, lots should be fenced and there should be emergency call stations strategically located where employees park their vehicles. During nighttime hours, or if an employee has reason to believe they may be the target of a violent act, provide an escort to the employee’s vehicle.

Posted in Home

Being Perceptive to Workplace Violence

In the summer of 2010, a driver accused of stealing beer from the Connecticut beer distributor he worked for, killed eight workers before turning the weapon on himself. According to one union official, the worker ran through the warehouse with the gun and “all hell broke loose.”

Earlier in 2010, eight employees were shot, three of them critically, at a St. Louis manufacturing facility. In this case as well, the gunman committed suicide after taking the lives of co-workers.

Violence in the workplace is a threat that most executives take seriously but few actually plan for. It is a risk however, that cannot be ignored. Aside from the ethical obligation of providing a safe and secure work environment for employees, there is also a legal responsibility as well. As some companies have already learned, failing to do so can result in serious injury or fatality, damaging media publicity, employee morale issues and costly litigation.

It is important to understand that a relatively small percentage of workplace violence is spontaneous. The preponderance of the time, there are warning signals. Although subtle, they are oftentimes present and recognizing them can mean the difference between being caught by surprise or preempting violence from occurring in your company.

Media reports indicated that in the case of the Connecticut beer distributor, the driver’s actions might have been prompted by racial harassment. Whether or not this allegation had merit is in question. However, in matters of workplace homicides, it’s the perception of the individual that matters. If an employee’s sense of reality is that they have been wronged in some excessive or ongoing manner, whether it’s actually true becomes irrelevant from a risk perspective.

Extreme workplace violence takes place more frequently than most realize. These incidents are not confined to commercial establishments either, as evidenced by the shootings of six employees at the University of Alabama’s Huntsville campus in February 2010, or the shootings at the U.S. Army’s Ft. Hood in Texas where 13 died.

An ABC news article quoted Dr. Paul Ragan, senior consulting psychiatrist at Vanderbilt University Medical Center’s department of psychiatry, who stated, “Suicides and violence can increase in economic hard times. If anybody talks about an experience where they’ve been humiliated and they have feelings about it, it needs to be taken seriously. The workplace is often a source of disappointment, and is the unfortunate recipient of the person’s rage.”

Be Aware of Symptomatic Behavior

Here are some red flags that frequently precipitate violent acts. Providing this insight to managers and supervisors can enhance their awareness and perception, two important factors to preventing extreme job-related violence.

• Employees making threats or being threatened – Threats should never be downplayed or casually dismissed. While 99 out of 100 threats may not lead to violence, it is the one case you overlook that can cause irrevocable harm.

• Employees who anticipate a layoff or who are suddenly terminated – The anguish of losing a job can trigger an array of strong emotions, from anxiety to rage. Also, keep in mind that some employees do not wear their emotions on their sleeve. Consequently, it’s not always easy to anticipate their delayed reaction to job loss.

• Employees with serious problems at home – Oftentimes, domestic issues spill over into the workplace. Confrontations can range from assault to homicide.

• Employees using medication or illegal drugs – Mind-altering substances can exacerbate an individual’s state of mind, sometimes causing behavior completely out of character.

• Employees who display signs of paranoia – Be aware of employees who feel that they are being targeted for unjust criticism or ridicule by superiors or co-workers. While they may appear outwardly passive, they may eventually retaliate and seek revenge. Also, keep in mind that certain drugs, such as cocaine, can dramatically increase an individual’s level of paranoia.

• Employees showing a fascination for weapons – Obviously, the most significant problems involve violent acts committed with handguns and assault weapons.

Posted in Home

Why Your Employee Dishonesty Insurance May Not Pay a Legitimate Claim

Insuring your company from employee theft is a unique form of coverage, different from loss caused by fire, flood, or even break and entry. Very few executives understand how it works, which is why so many legitimate claims are rejected each year.

If your facility is damaged by fire, water or forced entry, the physical evidence is apparent. It is essentially a matter for the insured to document the damage, tally the destroyed or missing inventory, and notify the insurance company. When it comes to documenting internal theft, however, you’re dealing with significantly different variables.

To begin with, your alarm system will not be going off in the middle of the night providing you with immediate notification that you’ve been victimized. Internal theft is a silent predator, normally taking place for months, and sometimes even years, before management becomes aware of its existence.

Another difference is the lack of readily available physical evidence that clearly proves the loss was caused by dishonest personnel. Most firms come to the realization that they are missing product only after receiving troublesome inventory reports or a confidential tip. Some warehousing executives wrongfully assume that inventory loss is the result of an operational problem, such as a software glitch, product mis-selections, or counting errors by inventory personnel, and the theft continues.

When management finally does become convinced that their loss is dishonesty related, they are faced with the difficult task of uncovering and documenting it. Unfortunately, this is not simply a matter of taking photographs of for example, water-damaged inventory. After all, it is hard to photograph product that has vanished.

It is safe to say that your insurance company will not be running to your door with a check simply because you notify them that you’ve been victimized by internal theft.

Most policies state that an insured must provide independent proof, in addition to a profit and loss statement, or inventory report, that corroborates that the theft was, in fact, committed by company employees. Consequently, the firm incurring the loss has the responsibility of performing an investigation and compiling evidence that proves that one or more employees stole the missing inventory. Without this independent corroboration, your financial computations alone simply will not count for much.

When properly prepared, and in conjunction with accurate financial computations, these forms of corroboration put the odds in your favor of having an inventory theft claim honored by your insurance company.

Undercover Reports – Factual observations made by a professional investigator working alongside company thieves.

Video Evidence – New technology makes it possible to conceal cameras inside smoke detectors, sprinkler heads and wall clocks, virtually undetectable.

Covert Surveillance Reports – Investigators who witness employees removing product from your warehouse or truck drivers delivering product to unauthorized locations.

Admissions of Guilt – Confession statements must be properly prepared and witnessed so it is clear that dishonest workers made their admissions without any duress, undue influence or coercion of any type.

Posted in Blue Collar Crime, Cybercrime, Embezzlement, Fraud, Home, White Collar Crime

2011 C-TPAT Conference

U.S. Customs & Border Protection recently held its annual Customs-Trade Partnership Against Terrorism Conference in San Diego, and once again this sold out gathering featured top caliber speakers.

In keeping with the theme, “A Decade of Supply Chain Security & Innovation”, Bradd Skinner, Director of the C-TPAT program, reflected upon the progress made in the last 10 years. Conceived in 2001 with only a handful of U.S. importers, C-TPAT now has over 10,000 business entities that have received C-TPAT certification. Globally, the C-TPAT program has become recognized as the standard for supply chain security excellence.

Director Skinner also provided insight into a number of important issues, including future direction for this historic program.

One of the points he made was the emphasis that C-TPAT will now place on “evidence of implementation“ during validations. Being actively involved with validations domestically and internationally, I’ve experienced this new focus firsthand. Whereas, the Supply Chain Security Specialist teams used to accept documents that simply formalized supply chain security policies and procedures, companies being validated are now required to prove that they are in fact being diligently followed.

When I was a speaker at the 2010 C-TPAT conference, I made the statement that most security programs look much better on paper than they actually work in reality. Danbee Investigations has performed supply chain security investigations and audits for over 25 years, ranging from inventory theft, sabotage, product tampering, and counterfeiting, to workplace substance abuse/distribution and smuggling.

We’ve repeatedly found the most major security breaches were the result of companies believing that their safeguards were far more effective than they ultimately proved to be. Company executives wrongly assumed that their asset protection safeguards incorporated best industry practices and were being diligently followed on a day-to-day basis. The reality for these companies was that many vulnerabilities existed, and were subsequently exploited.

By C-TPAT requiring companies to show proof of implementation, they will expose those companies not fully committed to implementing and consistently maintaining meaningful safeguards throughout their supply chain. Essentially, it is the “trust but verify” concept at work.

The February 2011 Global Awareness Bulletin published by the U.S. Department of State warns that American companies doing business in foreign countries may be targeted more aggressively by terrorist organizations like al-Qa’ida. Terrorists measure success not just in the number of victims but by the financial damage and long term costs associated with additional regulations governments are forced to enact to deter future terrorist incidents. Consequently, because of dramatically reduced inspection rates, C-TPAT certified companies automatically become high value targets.

If a C-TPAT member has superficial supply chain security controls in place they are at significatly higher risk of unknowingly transporting a conventional, biological, chemical or nuclear weapon into the United States. Obviously, safety is the number one concern. However, the ensuing panic, the widespread economic ramifications both domestically and abroad, as well as the financial and legal consequences for the company that imported the weapon of mass destruction would be catastrophic.

CBP’s mission is a daunting one. Unlike baseball, a .500 or .600 batting average will equate to failure rather than Hall of Fame status. While import volume to the U.S. may make perfection an unrealistic objective, striving for anything less creates an unacceptable level of risk. That’s why I not only understand CBP requiring evidence of implementation, I fully support this initiative.

Posted in C-TPAT, Home, Supply Chain Security

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