The paradox of trust

Toronto – Grant Thornton LLP announced the release of their latest white paper entitled “Trust and occupational fraud: How to trust is just as important as who to trust.” Based on both data from the Association of Certified Fraud Examiners’ (ACFE), Report to the Nations on Occupational Fraud and Abuse - 2010 Global Fraud Study and years of independent observation and analysis by practitioners, the white paper reveals a link between trust and occupational fraud. More specifically, the paper finds that occupational fraud is, paradoxically, being committed by those most trusted within an organization. Moreover, the findings suggest fraud committed by management tends to result in the greatest financial loss to an organization.

“We found that an office manager with many years of apparently faithful service had defrauded his employer of over half a million dollars over several years,” noted Daniel Laflèche, Forensic Accounting and Investigative Services at Grant Thornton. “He had earned the trust of the business owners over years and the company had few controls in place. As a result, the employee had ample opportunity to defraud his employer who was understandably devastated by the findings.”

Fraud is a particularly challenging issue for privately held businesses that may not have the same levels of fraud-prevention and -detection controls as larger, public companies, or who may not fully appreciate the impact trust-related fraud can have on businesses of all sizes.

“Of course we’re not saying that a company shouldn’t trust their employees. Trust is an integral part of a well-functioning business. What we are saying, however, is that trust must be controlled and verified,” added Mr. Laflèche. “It seems as though once an employee has demonstrated they’re worthy of a certain level of trust, employers tend not to re-evaluate, validate and justify that level of trust.”

The white paper outlines a basic, systematic approach to justifying and validating levels of trust bestowed on employees. Tactically, some specific controls that most businesses, regardless of size, can put in place to mitigate occupational fraud include hotlines, surprise audits, fraud training and employee support programs.