Encouraging theft, fraud, and violence

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Encouraging theft, fraud, and violence

When we speak of fraud, we generally speak of the fraud triangle: Opportunity, Pressure, and Rationalization.

Opportunity is just that: The opportunity to steal, in which we carelessly or thoughtlessly present a potential thief with the active temptation to steal. Opportunity includes such things as leaving your Palm Pilot on the table in a crowded restaurant while you go to the bathroom, not protecting small-but valuable merchandise, allowing the same person to issue purchase orders and pay invoices, and allowing delivery and pickup of merchandise at the same loading bay.

Pressure is an economic need (real or imagined) that causes the person to feel he needs to steal, and can range from illnesses for which he may need money, to a gambling compulsion, or a host of other reasons.

Justification is the reason invented by the thief to rationalize the theft or fraud.

The traditional view has long been that while opportunity is within our control, both pressure and rationalization are not generally as obvious or as controllable. Because of this, most fraud prevention efforts have involved putting in place procedures that reduce the opportunity for fraud, and catch it when it has occurred. As an example, we do not let the person who issues purchase orders accept shipment or pay invoices. And we use auditing to detect when fraud has been perpetrated.

Recently, however, we have seen a trend — for which we do not as yet have hard statistics — toward fraud, as well as theft and violence, in which there was, in fact, no economic pressure in the classical sense, and no necessary causal opportunity. Instead, the acts were in retaliation for what was felt to be bad behavior on the part of the company, and for which the attacker is striking back. While the details vary, you will discern is a common theme in the following four examples.

It is a sad fact of life that people sometimes get fired or laid off. Assuming it is not for some criminal cause, a skilled and careful administrator can present this life-shattering event as an opportunity for the person being letgo. It is not uncommon, however, for administrators to choose to give someone their walking papers the day before Thanksgiving, Christmas, or some other major holiday. While this may seem clever in a Dickensian sort of way, it breeds ill-will not only on the part of the person fired, but, also, with that person’s peers. Sadly, albeit not-unreasonably, some people react poorly to hostile, thoughtless, and uncaring working conditions. From the employee’s point of view this might be considered theft of dignity.

Some companies like to get the most bang for their buck from employees, and have them work extra hours without paying them for the extra time. Often this is done by making employees “professional” or “management” employees, since this class of employee does not receive overtime. This allows the company to pay an employee for 40 hours of work, while having the employee actually work 50 or 60 hours per week. For those of you who wonder why the GNP is greater than it should be, this uncompensated time represents part of the missing piece. From the employee’s point of view, this might be considered theft of time.

Many insurance companies, including HMOs, believe that their function is to take payments from policyholders, but not give it back. It is, therefore, their policy to refuse many classes of claims on first submission, forcing the claimant to appeal the rejection. In the case of medical insurers, procedure payments are booked based on the lowest common denominator of payment, so that generic drugs and standard treatments are more likely to be approved than more-costly treatments, even if those treatments might be more appropriate for the individual patient. In addition, hospital stays are likely to be much shorter.

The up side of this is that, in the beginning, this did cut a good deal of fat from health care costs. Unfortunately, once the fat is gone, further cuts have to come from flesh, and there develops an increased likelihood for inappropriate or inadequate treatment. This is not a problem for those with enough money, but some small number of people are likely to become cranky when their loved ones suffer or die because their medical condition falls outside the desired limits. While an intellectual case can be made that certain heroic treatments are appropriate for someone who is (young, smart, cute, famous, ad nauseam), on a personal level the logic fails the treatment is withheld because the patient is old, or not likely to survive for other reasons, but happens to be your mother or father or sibling or beloved.

A variation of this is unequal benefits in corporations, a problem brought about by a belief that the primary function of a company is to reward upper management. We have seen cases in which a senior manager receives compensation in the tens of millions, as a consequence of which the other employees are forced to pay for their own health insurance or other benefits.

In other cases, corporate claims officers may take a cue from insurance and health providers, and exclude as many benefits to employees as they can.

From the employees’ or policy holders’ point of view this might be considered theft of benefits.

Finally, we have the case in which companies consider their smaller suppliers to be an interest-free extension of their credit line, and will take 60, 90, or even 180 days to pay. This can be enough to strain, or even break, the credit of a small supplier. This pyramids down, with small contractors then being unable to pay their suppliers. From the suppliers’ point of view this might be considered theft of revenue.

What is the reaction to these various kinds of theft? It varies. The lowest common denominator is that it always results in a lessening of both the quality and quantity of service provided by the victim to the thief. Moving up the scale of retaliation we find an increase of petty theft. For those more deeply hurt it can escalate to more serious theft and fraud, and an increased inclination to sell — or even give away — proprietary information if it will harm the offending employer. Finally, in extreme, albeit rare, cases, it will escalate to violence. In all cases, the problem could have been avoided through proper behavior on the part of the company in question, generally at relatively little — and in some cases no — additional cost.

For many companies theft and fraud are still a balance-sheet issue. This is because most fraud — other than fraud by senior-level management, which appears to have lessened as executive compensation has skyrocketed — is relatively small in nature, and acts of violence are sufficiently rare and can be handled by insurance. Thus, a decision may well be made that it is more cost effective to have lower productivity, theft, fraud, disclosure of proprietary information, and occasional violence than to exercise due diligence in their prevention.

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