CFOs, Embezzlement, and Stopping Workplace Fraud

Image via Flickr by Chris Potter

From Bernie Madoff to Darryl McCauley, it may seem like we’ve seen it all in embezzlement cases. But in the Perrenod vs. United States case, a new precedent may have been set – where one executive faces punishment for the crimes of another. While this may not be the case, it’s curious that the CEO of Parallax Design and Construction, Inc. was declared responsible for unpaid taxes even though the CFO had embezzled that money and lied about its whereabouts.

The situation began in 2005, when CEO George Perrenod received complaints that vendors and subcontractors had not been paid. Perrenod asked Stanley Thompson, the CFO, for the report and a fake one was prepared. By 2010, the embezzlement and workplace fraud culminated in fines totaling $25,764 from the IRS. An additional $25,151 was charged against Perrenod himself.

How Executives Can Stop Workplace Fraud

While the situation of Perrenod being held responsible for Thompson’s action isn’t representative of the typical CFO and CEO relationship, it’s a reminder that workplace fraud should remain a top concern in tough economic times. A recent study from KPMG shows that fraud such as embezzlement is most prevalent in the finance department, but that it can come from anywhere within an organization.

Aside from hurting the company in general, fraud is especially punishing in economically challenging times, as it not only stretches a thin budget even tighter, but also creates inefficiencies in various workflow audits. To stop workplace fraud, top executives including the CFO should consider implementing strategies aimed at reducing, discouraging, and eliminating fraud such as embezzlement.

Actions include:

  • Unannounced audits. Unlike scheduled audits, a surprise audit doesn’t give the fraudster time to falsify documents or create a fake trail. In fact, some studies estimate that surprise audits can detect fraud 58 percent of the time.
  • Updating the hiring policy. If your company doesn’t currently verify past employment or engage in a criminal and civil background check, it might be time to update policy to include those in the hiring process.
  • An open door policy. Always encourage team members to voice concerns, issues, and dissatisfaction so that pressures can be resolved before a crime is committed.