Some Managers May Direct Employees to Commit Fraud

An often overlooked phenomenon involves employees committing fraud not for personal gain, but out of loyalty, fear or a misplaced belief they're protecting their boss or company. When employees falsify records or steal, it's usually assumed they're trying to enrich themselves. However, some workers commit fraud at the explicit request or implied suggestion of their managers.

Such schemes are hard to investigate, not least because managers who benefit from the misconduct are unlikely to report or question it. Let's take a closer look.

What Might Drive Perpetrators?

Employees who commit fraud on behalf of their manager or company do so for many different reasons. Some feel a sense of loyalty and obligation to their manager. Others fear their superiors and act unethically to avoid retaliation. Or the organization may implicitly condone such activity by failing to punish those who don't adhere to internal controls.

Regardless of the motive, when employees commit fraud at a manager's direction, losses can accumulate quickly and go undetected for long periods. In general, the longer a fraud scheme runs, the greater the financial losses.

What's the Role of Unethical Managers?

Managers may ask employees to engage in a broad range of questionable activities. For example, a manager might ask someone to manipulate the company's financial statements so the business hits certain targets to appease investors or trigger performance bonuses.

Alternatively, a manager may ask an employee to backdate documents, alter contracts, manipulate expense records, cover up questionable transactions or hide potential regulatory violations. Crooked managers often ask employees to bypass internal controls, such as the segregation of accounting duties.

How Can Businesses Prevent Such Abuse?

Employees must understand that managers don't have the authority to ask them to violate company policy. This requires ethics and fraud training. Specifically, teach workers that loyalty never justifies unethical conduct.

In addition, provide a confidential fraud reporting method (such as a hotline or web portal) and instruct employees to report any requests that violate company policy — no matter who makes the request. Your business also needs strong antiretaliation policies that are widely publicized. And monitoring the "tone at the top" to ensure leaders are modeling ethical behavior is essential.

To help assure your company culture fosters honesty and employees don't feel pressure to do wrong:

• Routinely conduct employee surveys and exit interviews,
• Avoid setting "impossible" goals that might require workers to bend rules, and
• Hold managers accountable for any company policy violations.

If you discover a bad apple in your leadership ranks, don't hesitate to discipline the person with, for example, a demotion or even termination.

Who Can Help?

When employees commit fraud, it's important to ask whether they acted alone or were under pressure to do so. The easiest way to ascertain if employees are acting on another's behalf is to ask them. If someone is hesitant to discuss a manager's conduct and doesn't appear to benefit personally from fraud (yet a manager does), the employee may simply be following orders.

Contact us if you suspect fraud but can't identify who's pulling the strings. We can help you get to the bottom of complex schemes that may, in fact, be motivated by misplaced loyalty.