Entitlements and theft - by Robert Cooper
Entitlements and theft
Do your staff know the difference?
We have discussed previously the importance of keeping the workplace happy and productive, and allowing your staff to share in the success of the business journey with you, enthusing them with more responsibility and setting reasonable career goals. But sadly, for some this may not be enough. We know the reasons people steal include, having an addiction to drugs or gambling, but for some it is justified by a sense of 'entitlement'. The statistics for fraud, corruption and embezzlement among many not for profit organisations is huge. Employees often are not paid well because of the nature of the organisation, and they may have many volunteers who give a lot of time willingly. However, sometimes they reach the point where they feel disgruntled. They may get to the point where they feel unappreciated and simply used up. In this situation, they may feel a sense of entitlement. They may grab the odd freebie. Perhaps, they have bought something for the organisation and forgot to claim the expenses, or lost the receipt, and justify "goods in kind" for themselves. The thin line between entitlement and theft is similarly blurred in business.
The worst case I saw was for a charitable organisation up on the Sunshine Coast. I had arranged an Association Liability policy that included a sub-limit of $50,000 for any fraud and embezzlement by members, volunteers or employees. It took many months for the organisation's committee to discover their only paid administrative officer was using the association's credit card for purchases that were not related to their business. Instead they were purchases for repair work around his own home and for fuel and servicing costs for his wife's car. Lunches, dinners and entertainment were all purchased with the same card. Some justifiable, most were not. Unfortunately, the incorporated body became insolvent as expenses exceeded income. It was discovered, by investigators, that the Administration Officer was using the card in this way and was asked to pay these amounts back. He refused, saying he was entitled as he was not being appropriately rewarded by the organisation for his hard work and dedication. Besides, he had no money in the bank. He was charged by the Police and was happy to fight the charges. He was never convicted. Instead it became a claim against the committee members for breaching their fiduciary duty in checking on these expenses and asking the appropriate questions. They lost their Government grant, disillusioned volunteers who did additional fund raising quit and other sponsors withdrew their support. The organisation folded and so disappeared a valuable service to the local community.
Small "rewards" quickly snowball
We will often see in the news or hear from an organisation's members that their office bearers, or their church leaders or union officials or politicians in all types of organisations feel entitled to generously reward themselves. They will ignore the rules and/or standards acceptable in the community. We also know this behaviour occurs in the commercial world by employees who feel entitled to use company assets for personal use, doubtful expense claims, exchanging "free" or "promotional" samples for goods or even cash, and other perks too numerous to mention. If this is added to the cost of straightforward theft and embezzlement, the financial impact on businesses is significant. Whether it is theft or entitlement, losing the value of these assets for businesses can often cause many organisations to become bankrupt or insolvent. Most abuses start out small, but gradually, like a leaking tap, they become a torrent that can drown the business.
What rules do you have in place around entitlements?
These risks need to be managed, because even though we can obtain insurance for thefts that can be proven, many others under the guise of entitlement cannot. Having procedures in place to deter and detect fraudulent activity is a basic requirement for any business. Some businesses make use of mystery buyers or announce surprise audit checks. These are just two of the tools available. Guidelines need to be established:
- You need very clear rules on what is a staff entitlement, otherwise 'entitlement' becomes different things to different people.
- Staff discount
- What Petty Cash may be used for
- You need clear penalties or consequences if these rules are breached
- You need to have a consistency across all areas, not one rule for one person and a different rule for another. Otherwise it is very difficult to defend.
- Make sure these rules are reviewed regularly and followed up.
- Investigate any issues identified immediately.
While Insurance, either "stand alone" Fidelity Guarantee or Commercial Crime policies are available, an Insured has to be able to prove their loss. Take a suspected inventory loss. How can this be measured and how can the loss be explained? Many have a relatively small sub-limit in a Management Liability policy or a Business Pack. It is a section often claimed from and never seems to be enough cover. It is not cheap cover. Unfortunately, many organisations and businesses do not survive constant and large amounts of theft and entitlements. Think about your organisation's entitlements. What are they? If you knew the annual amount of the "Theft and Entitlements" for your business, would you be shocked? General Advice Warning This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.