- Keep the Foxes Out of Your Henhouse – read now
- Employer Peace of Mind – read now
- Freedom of Information Act Faux Pas – read now
Keep the Foxes Out of Your Henhouse
Unfortunately, business fraud in the workplace is not as uncommon as many business owners think. Employee theft and dishonesty affects all types of businesses and yes, even law firms. Often, the violating party is a well-regarded employee who has been with the company or firm for many years. Although the trusted employee is often the company bookkeeper, it can also be found in employees submitting fraudulent reimbursement requests, theft of merchandise thought broken or lost or paying inflated prices to favored vendors in the interest of personal favors or other kickbacks. Besides imposing strong policies, auditing, requiring documented support of costs submitted, and limiting check signing authority or imposing multiple signatures for checks over a certain amount, there are other practical steps a business should take to prevent and catch employee dishonesty. Most of the steps are obvious, but in an era when getting the work out the door takes precedence, unfortunately these simple policies are not always followed.
For example, bank statements should be reviewed each month and reconciled. All cancelled checks should be reviewed and validated. Unrecorded expenses are big red flags. Similarly, all credit card charges should be reviewed each month and validated. Most importantly, the person reviewing the items should not be the person who incurred the costs, wrote the checks or used the credit cards. Checks and balances require that multiple eyes review expenses. Petty cash and inventory checks should be made and inquiries should be made where one employee is frequently noting damaged goods and/or ordering extras.
Employees suddenly changing work habits including insisting on independent work, taking significant days off or other sudden changes in employment patterns are good signs that something may be up with the employee and a watchful gaze may be necessary. In fact, one of the more unsuspecting signs of employee theft is an employee who refuses to take time off, frequently takes work home or works unnecessary extra hours. Auditors frequently note that what some employers view as a positive employment trait is a common sign that a thieving employee is working overtime to ensure that their schemes remain undetected.
All employers should also have policies in place requiring employees to certify the business purpose of expenses submitted for reimbursement and should have employees expressly agree to repay any expenses not appropriately documented and/or for the business. Ideally, employees need to agree in writing that any such unsupported expenses can be repaid by withholding paycheck amounts. In the event an employer determines there may be employee dishonesty occurring, the company accountant should be contacted immediately. A forensic audit can be quietly performed without the suspected employee’s knowledge. In addition, each business should maintain appropriate insurance coverage for employee theft. The proper coverage will provide some protection after the usual deductible is met. Contact your insurance agent for coverage recommendations.
Perhaps the most important of things to do if you discover employee theft is to contact the police and/or State’s Attorney for the county in which your business is located. Most counties have a fraud division specializing in such thefts. Also, keep in mind that many of these employees have probably done this to previous employers as well but continue only because they were not held accountable. This occurs sometimes because the former employer did not want to bother with additional expense and hassles or because the employer rationalized that the employee needed the money. Countless individuals get away with theft from their employers which could have been avoided had the previous employer from whom the employee stole been willing to prosecute and/or pursue civil relief. Nothing is worse than finding out the previous employer could have stopped your loss had they only taken action to identify the fraud.
Employer Peace of Mind
In a recent Opinion Letter from the Department of Labor, the DOL provided guidance that when an employee spends time voluntarily participating in certain wellness activities such as Weight Watchers and using the company sponsored gym, biometric screenings, and benefits affairs which test things such as an employee’s cholesterol levels, blood pressure, and nicotine use, it is considered noncompensable. The DOL explained that although the voluntary nature of employee’s participation in the screenings could decrease his or her health insurance deductibles, the screenings are in no way related to the employee’s job. Since the employee’s voluntary participation in all of these activities predominantly benefits the employee, the DOL concluded it does not constitute compensable worktime under the FLSA. The DOL emphasized that given the activities were completely optional, provided direct financial benefit to only the employee and because the employer relieved employees of all job duties when it allowed them to participate, the DOL concluded that the activities are noncompensable “off duty time.”
Freedom of Information Act Faux Pas
The primary law governing how the U.S. Government discloses to the public recorded information in the Government’s custody and control is the Freedom of Information Act (FOIA). FOIA is premised on the concept that Government records must be publicly disclosed so that the general public can determine what its Government is “up to.” Thus, FOIA requires federal agencies to disclose automatically certain records to the public and, upon request, disclose other agency records to the public. FOIA’s focus is on agency records; FOIA does not require agencies to create or disclose records that do not already exist. FOIA also does not require agencies to obtain or to disclose records that are not within the agency’s control at the time of the request.
Certain categories of information are exempt from disclosure under FOIA. Among other things, FOIA exempts from disclosure trade secrets and privileged or confidential commercial or financial information. If a Government record contains such information, FOIA requires the Government to confer with the drafter of the information to determine what can be released. If it intends to release the information despite a drafter’s objection, the drafter can pursue court action to stop the release.
Despite the protections that FOIA provides to owners of information submitted to the Government, abuses can occur and may be difficult to correct. Government employees have been known to commit improper disclosures by informally disclosing records without going through the exemption processes set forth in FOIA. The problem is that even when the Government fails to follow FOIA, the rights of the owner of the released information are limited since FOIA fails to provide clear remedies, actual damages may be difficult to prove and damages may not be clearly recoverable from the Government.
To guard against problems, contractors need to be proactive in marking as proprietary any such information provided to the government and carefully respond to any requests from the government regarding releases it anticipates making pursuant to FOIA requests it receives. When possible, be liberal in what can be considered proprietary in proposed redactions and when in doubt, redact it out.
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