Trust is Not a Control

Our opinions of fellow employees can interfere with good judgment. This is one message that emerged during my recent conversation with Kelly Paxton, a Certified Fraud Examiner and pink collar crime expert. A mistake that organizations often make is over trusting their employees and having lax control environments as a result. See what else Kelly says is a problem and what your organization should be doing. Taking her advice could save your organization time, money, and heartache.

About Trust       

Kelly stresses that, while organizations should trust employees, trust is not an internal control. She points to Ronald Reagan’s famous philosophy of “trust, but verify” and tacks on “and surprise.” Kelly told me about an organization that audited departments on a set schedule and departments knew it. You can guess what happened. One employee took advantage by committing fraud in the months other than when her department would be audited. Cardholders should not know when their transactions will be subjected to the audit process. This led to a discussion about receipts.

Kelly agrees that manually auditing every receipt can be a real time sink. This drives many organizations to set a dollar threshold under which a receipt is not required. However, Kelly recommends mandating receipts for everything, conveying to cardholders to keep them on hand for potential audits, and then auditing a manageable number each month. Be sure to look at every cardholder at some point, so a particular person does not feel like they are being singled out.

Other Potential Problems

Underestimating Employees

Underestimating employees, especially female employees, is another mistake an organization can make. As she notes in her complimentary resource, The A to Z of Embezzlement, “just because she’s lower on the org chart than you does not mean she’s not as smart as you.” She knew a business owner who said his administrative assistant was “too dumb to steal.” This is another example of when opinions of people can interfere with good judgment. Again, you can predict what happened. She stole. Because of his attitude toward her, she probably thought it was justified. Kelly stresses, “Don’t give them a reason in their mind to steal from you.” Her A to Z resource also mentions employee dishonesty insurance as something to consider.

Poor “Tone at the Top”

A poor tone at the top influence employees’ behavior, even if the controls are strong. As Kelly observes, “You cannot expect your employees to behave when they see the executives misbehave. Good people in bad environments can go bad.”

False Accusations

Kelly, like many card program managers, have seen firsthand that some employee purchases may look like fraud, but they are not. She recommends discreetly interviewing the employee to learn more, but do not take a DIY approach to crime solving. Leave it to the experts and do not falsely accuse. Chipotle once claimed an employee stole from them; she sued and won an $8M settlement.

Kelly’s remarks made me realize that “how to handle potential fraud” is a good topic to add to your card program manager/administrator manual, so that you follow a consistent (and mindful) approach.

About the Current Crisis

Finally, Kelly expressed that the COVID-19 pandemic might be starting a tsunami of fraud and embezzlement because of things happening in people’s lives. Desperation leads to creativity.

See the previous post about why card fraud is now harder to spot and what you can do.

“It’s no joke that the loss of trust is far more damaging than the loss of money.”
— The A to Z of Embezzlement

About Pink Collar Crime

It is a term popularized in 1989 by Dr. Kathleen Daly in Criminology magazine. “Petty acts committed by low to mid-level employees, primarily women, in the workplace.” Men can be pink collar criminals, too.

Complimentary Resources

About Kelly Paxton

Kelly Paxton is a certified fraud examiner, private investigator and pink collar crime expert. She started in the finance industry but went on to become a federal agent for US Customs. Kelly specialized in white-collar crime, narcotics and undercover operations. Kelly worked on typical “bad guy” cases. Kelly then went to work at a local sheriff’s office as their fraud analyst. The suspects for the embezzlement cases were regular people and the majority of them women. No one you would consider to be a hardened criminal. This was a big change.  This is where she saw honest people stealing.

Subscribe to the Blog

Receive notice of new blog posts.

About the Author

Blog post author Lynn Larson, CPCP, launched Recharged Education in 2014. With 20 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more…