Frank Abagnale, the con artist who Leonardo DiCaprio portrayed in the movie “Catch Me If You Can,” is now a security consultant who advises clients on how to avoid becoming victims of fraud. His advice is simple: if you make it easy for someone to steal from you, it will probably happen.


Electrical contractors who trust their employees often have a false sense of security, especially those who haven’t experienced internal theft on a large scale. All businesses allow for minor slippage—an employee who takes home a pen, checks personal emails or runs personal items through the printer or copier. The total cost of this pilferage accumulates over time, but many employers consider it a cost of doing business. If overall productivity is reasonably high, it’s just another perk, like treating the crew to pizza after a profitable job.


On the other hand, large-scale occupational fraud, such as embezzlement—­or “white collar crime”—can ruin your business. You may survive the monetary impact, but when the crime is revealed, your reputation suffers. Customers wonder why you didn’t have control of your business. For that reason, employers may be reluctant to prosecute their own employees.


Despite the wealth of available technology to secure data, the global cost of hidden corporate fraud is estimated at about 5 percent of annual revenue. For a typical contractor, that can easily exceed net profit. Unfortunately, the problem is growing. In 2009, the Wall Street Journal reported the results of a survey of 500 certified fraud examiners (CFEs) by the Association of Certified Fraud Examiners (ACFE), citing their views of the economic recession’s effect on occupational fraud. More than half noted that the level of fraud had increased during the past 12 months, and 49.1 percent named increased financial pressure as the primary contributing factor, followed by increased opportunity (27.3 percent) and increased rationalization (23.7 percent).


The report concluded that employees posed the greatest threat in a recession and that embezzlement was on the rise. Almost 60 percent of the CFEs who worked as in-house fraud examiners reported that their companies had laid off employees during the past year, and a third said that those layoffs had resulted in the elimination of some internal controls. Almost 90 percent predicted another fraud increase over the next 12 months.


At the end of 2014, another CFE, also a managing director of global forensics for an international consulting company, predicted that technology would increase the sophistication of fraud schemes in 2015. However, he noted that the same technology, such as data analytics, would also help catch the criminals.


Data breaches of large retailers, such as The Home Depot and Target, are examples of how vulnerable stored data can be. Digital currencies, such as bitcoin, along with improved credit card technology, such as transaction-specific one-time codes, will shift fraud risks between consumers and businesses even further. An increase in the protections available to whistleblowers, along with other incentives, is expected to entice witnesses to report incidents of fraud and help authorities investigate and prosecute the crimes.


What does this mean for you as an electrical contractor?


“Desperate people do desperate things,” said James D. Ratley, ACFE president.


Even loyal employees can steal from their employers during turbulent economic times. Electrical contracting is often a cyclical business, so you must be vigilant and ensure that you have protection in place, regardless of what you believe about the ethics of those who work for you.


How do you protect our company from internal theft? The ACFE website (www.acfe.com) offers a free fraud-prevention checkup form. ACFE advises employers to confer with legal counsel before beginning a formal fraud-
prevention evaluation, which is a collaborative process between your internal audit staff (if your company is large enough to have one) and the independent fraud specialist who provides an objective analysis.


A formal analysis requires interviews with managers and other employees who may offer perspectives far different than what you observe within your company. The goal is to find major gaps in your security systems. You will be asked about how you manage fraud-related risks, who has ownership of each process and what level of tolerance your company has for lower levels of theft as a cost of doing business, as opposed to catastrophic losses.


Evaluating your internal protections is only the first step in combatting occupational fraud within your electrical contracting business. Next month, this column will cover some specific ways to protect your assets, and, in September, I will provide some information directly from fraud investigators about how they detect deceit. Until then, keep your eyes open and continue monitoring your financial data closely.