Economic woes in Alberta are a recipe for fraud

Greg Draper has never been busier. A former RCMP investigator turned forensic accountant in Calgary, he started noticing more fraud cases landing on his desk last fall. Disgruntled employees – motivated perhaps by heavier workloads as companies get lean or financial troubles at home – are padding expense claims and overtime pay, invoicing for personal meals and trips, and even forming fictitious vendors under shadow companies to give themselves bonuses.

“We’ve seen this in past recessions,” says Draper, a vice-president with national accounting firm MNP. “Businesses that are reducing their headcount have to consider the impact on their fraud risk.” The toll of layoffs on employees left behind can lead them to defraud their bosses, he says, and fewer staff also means less oversight. “It’s a recipe for trouble,” Draper warns.

The realization that an employee can’t be trusted – especially if it is one for whom others were sacrificed – can be conflicting for small-business owners. They may have a personal relationship with their workers and their families. Employers may take pity on them, while also feeling betrayed.

However, Edmonton forensic accountant Justin Thoman suspects most schemes he’s now investigating took root at the height of the Alberta boom. “When everyone’s rolling in the cash no one’s paying attention,” he says, “but then it gets detected when times are bad again. [Companies] are tightening their belts and wondering, how come we don’t have more money from the good times?”

That was certainly true of one Edmonton man, who agreed to tell his story on condition of anonymity, and who, by his own estimate, defrauded his employer of $40,000 a year over four boom-time years. As an operations manager, he conspired with two other employees, including his supervisor, who taught him how to add line items for extra charges that third-party vendors – also in on the scheme – would then put in a slush fund for everyone.

“You forge mutual bonds [with vendors] at a trade show,” he explains. “Then, on the next invoice, you throw in a little more because [they] really took care of us the last time. You say, ‘Those beers were good, but next time I’m in town what do you say we go to a football game?’ And then a football game becomes a game and hotel room, and this and that. Before you know it you’re cutting bigger and bigger cheques for more and more fun. … It kind of gets away from you,” he said.

The man now works in the public sector, where he says he’d never dream of tying to pull off a similar scam – not just because he is under stronger scrutiny, but because it’s ethically wrong.

How, though, could he rationalize the fraud at his former employer, a large corporation? He thought he’d earned it: “You grind yourself to save the company literally millions of dollars on gross margins, fighting tooth and nail,” he says. “If I’m not going to get recognized by the company, I’m going to recognize myself.”

To his knowledge, the scam was never uncovered. But for employers who do suspect they’re being defrauded, it’s important they seek counsel, not retribution, says Steven Robertson, a corporate fraud recovery lawyer with Calgary’s Miller Thomson. “If someone’s prepared to commit fraud, to secretly steal,” he says, “then they’re prepared to hide that money and do what they must to get away with it.”

Robertson suggests employers don’t let on when they first discover fraud. Employers can get a court order to gather evidence, perhaps from banks, and possibly freeze any suspect accounts. That way the employee is prevented from bankrolling a defence with stolen funds and the case can be settled out of court, Robertson says. “This obviously doesn’t work if the employer’s reaction is to call the employee in and fire them.”

To prevent potential fraud, business owners should demonstrate that they’re monitoring for it, says Thoman. Some of his clients have taken to having staff sign a declaration of ethics, “something that reinforces to the employee what behaviour is expected,” he says.

Draper adds that cultures of corruption come from the top down. “Take care of the employees you have and set an example of ethics over success at any cost,” he says. “Employees who feel cared for and treated with respect are less likely to rationalize stealing.”

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Courtesy: The Globe And Mail

7 Comments Categories: Small Business

7 Replies to “Economic woes in Alberta are a recipe for fraud”

  1. The province needs a forensic audit of the past PC government to see where all the money got siphoned off to…

  2. Alberta….Harp­er’s closet……fra­ud……recipes­…..about sums up the last decade under the muffin man rule!

  3. formerlyrbfromcalgar­Sure.

    Hire an audit firm, pay them $100 k, to uncover $20 k in mildly inappropriate expenses like “beer and hockey games”.

    Have seen this movie before: audit firm rides in to great fanfare, and immediately must start justifying their existence. And where no real fraud exists, they must invent and inflate it.

    What a joke.

  4. Reading this article gives the impression that white collar crime is pretty much socially acceptable, at least in Alberta.

  5. Interesting rationalization for his criminal actions by this scumbag who now works in the public sector: “He thought he’d earned it”. I imagine it won’t be long before he similarly justifies renewed criminal activity in his current position.

  6. “The man now works in the public sector, where he says he’d never dream of tying to pull off a similar scam – not just because he is under stronger scrutiny, but because it’s ethically wrong”.

    What a fascinating insight into the public sector control of expenses and expenditures by an individual who for four years along with two subordinates scammed his private sector employer out of $40,000 a year. It’s at the same time disconcerting that the individual is now being paid directly by taxpayers.

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