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White collar crime

The changing economic environment, advancements in technology and international expansion make the threat of white collar crime more ominous than ever before. Every company, regardless of their size, should consider themselves a potential target.

White collar criminals can cause havoc with a businesses reputation, cash flow, investor’s confidence, and employee’s morale. Companies can be subjected to repeated attacks by their own employees, by outsiders or by both in collusion.

  • White collar crime includes:
  • Traditional employee dishonesty
  • Employees working in collusion with third parties
  • Employee theft of stock, work-in progress, and raw materials
  • Payments made to fictitious accounts/suppliers
  • Fictitious or over-inflated salary payments
  • Collusion with suppliers to defraud the employer
  • Employee theft of client property

Real life examples of white collar crime

Stock theft by long-standing employee

The employee of a specialised UK manufacturer had been working for this company for almost 30 years and was considered a highly trusted employee. He had a senior position and was responsible for ordering all stock within a required budget. The type of stock ordered, however, was not monitored by his managers and he was able to steal £70,000 of stock over a six month period.

Employee hides fraud behind specialised knowledge

 A systems manager worked for a manufacturing company for 14 years and stole property worth £150,000 during the last 7 years of his employment. The employee was responsible for ordering all IT equipment required for use by the company. The insured were impressed by the employee’s expertise and trusted him with the entire IT budget, without ensuring adequate controls were in place to record the type and amount of products ordered and whether they were accounted for on the premises. A colleague had become suspicious of the employee’s activities but it was not until a company Christmas party that this was disclosed to senior management! Otherwise, the loss could have continued undetected for many years to come.

Slow-burn fraud by finance director

A building manufacturer in Ireland discovered their FD had stolen €215,000 after a client contacted them querying an overdue payment that the building contractor owed. Although the firms accounts had shown the money had been paid, an inquiry by the board discovered monies had in fact been transferred to fraudulent bank accounts, controlled by the FD and family members. The FD had manipulated refunds and payment procedures and had personally written and signed computer produced company cheques each month for small amounts to avoid suspicion. Unfortunately, he was able to get away with this for 9 years before being caught out.

Company employee manipulating rarely used account

An engineering company with a turnover of just under £1bn and 97 locations has been with the same insurer since 1993 with excellent evidence of good controls and was seen as a good account. There was a loss of £10m by internet spread betting. The culprit disappeared. He was in a position of trust in the treasury department and was using a rarely used FOREX account to hide trades. This theft occurred over 4 years and was only insured for £5m. This loss immediately affected the share price of the company.

Charity begins at home

A charity with a turnover of £23m which had appropriate segregation of controls between staff who initiate transfers and those who authorize them made some internal changes. A promotion saw the person who initiated transfers become the person who authorized the payments but he also retained his authorization pin for initiating payments. In the space of 9 months he made fraudulent transfers of £850,000.

Supervisor stole £18,000 in odd 20p coins

The supervisor told the court he had pocketed any coins that spilled from the machines onto the floor as he emptied them. However he was ‘surprised’ he had collected £18,400 over four years and was ‘extremely sorry’, the court was told. Sentencing the 29 year old, the judge said ‘You must have had very shaky hands.’ The scam was uncovered after an audit by the District Council revealed a dip in takings from toilets. The supervisor insisted he was innocent until police discovered he had been making regular deposits of small change into his bank account. A search was then carried out at his home and bags containing £2,580 in 20p coins were discovered.

Reducing the risks – steps you can take

Preventative measures can be taken to reduce the risk of white collar crime by implementing a comprehensive risk management program together with a crime policy.

Business insurance with a comprehensive crime policy provides protection against loss of assets today and in the future and can cover the following:

  • Employee theft: direct financial loss caused by theft or forgery by an employee.
  • Premises cover: losses sustained due to destruction disappearance or abstraction of money and securities within or from the client’s premises by third parties.
  • Transit cover: losses sustained due to the destruction disappearance or abstraction of money and securities outside the clients premise by a third party, while being conveyed by the insured or any authorised person.
  • Depositors forgery cover: losses resulting from instruments which have been fraudulently drawn upon by the company’s accounts or third party.
  • Computer theft and funds transfer fraud cover: losses resulting from the intentional taking of money or securities through the use of a computer or fraudulent instructions to a financial institution to transfer pay or deliver money or securities.
  • Investigation costs cover: reasonable expenses incurred in establishing the existence and amount of any direct loss in excess of the deductible.

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