Property management administrator to pay over $800,000 in damages after misappropriating funds
The Employment Relations Authority (ERA) has ordered a former property management administrator to pay over $800,000 in damages after being found guilty of misappropriating company funds.
It’s a reminder that companies should review their codes of conduct, according to Barrister at Quay Chambers in Auckland, Michael Thomas.
“Sadly, this isn’t uncommon but there are things that businesses can do to mitigate the risk and spot things like red flags,” he said.
“You have to look at even senior positions within a company, even if the person's a trusted, senior employee. You have to think about the checks and balances that are in place.”
The former employee – who had worked at the firm for several years – had responsibility in managing bond payments and rental transactions. Discrepancies in bond records were found in August 2020 and an inquiry found the funds were being diverted to their personal account.
A subsequent investigation showed that the employee had been manipulating bond records, with evidence pointing to fraudulent activity dating back as far as 2015 – including creating fake invoices.
The total loss due to the fraudulent activities amounted to $881,240, based on detailed forensic accounting of bond discrepancies, fraudulent invoices, and misdirected tenant payments.
The final determination of loss was $869,112 after accounting for money owed to the employee for holiday pay.
Fraudulent behaviour, according to Thomas, includes a number of actions employees may take to try and go under the radar – such as not taking annual leave, unexpected wealth or lifestyle changes.
“A lot of it comes down to keeping control of what they’re doing. That’s why some businesses have enforced annual leave over certain periods, like Christmas. Money’s a real giveaway, like a person making expensive purchases that don't seem to fit with their previous lifestyle or their known income.”
According to research from the University of Pretoria, financial statement fraud represents the smallest amount of fraud cases but result in the greatest monetary loss.
Thomas told HRD that the impacts of fraud can be “pretty significant”, with some cases seeing the dissolution of companies and organisations.
“In many cases, you’re going to see a clear breach of trust, which is detrimental to a workforce – especially if it’s small. You’ve also got a commercial point of view - a fraud of this size, within a small business, can easily see the end. But for any business, it's going to have a significant financial impact that could have ongoing sort of implications for the business and the other employees,” he said.
With any crisis management situation, it’s important to ensure you learn from the mistakes of the past to make the business more resilient and protected – such as having specific programs in place, like whistleblowing.
“[Fraud] is common and it’s important you create a culture where people can speak up. Nobody can be excluded from checks to make sure everyone is following correct procedure,” Thomas told HRD. “Businesses can often be reluctant to bring attention to incidents like this because of media publicity – but you need to keep your integrity and make sure everyone is held to account.”
Thomas said there are a number of questions businesses should ask themselves when looking how to mitigate fraudulent activity, including:
Can responsibilities be segregated to reduce the burden on select employees?
What members of staff have authority to approve or process payments?
When was the last time the workforce/practices were audited?
Are there any irregularities in workflow systems?
“Two signatures on payments is also very helpful. Regardless of who you are in the company, you should be held accountable and be audited,” Thomas added.
