By Ron Schmidt
When some one gets caught stealing or cheating, our first response is to ask why he did it.
Andrew Caspersen, a Wall Street investor, just pleaded guilty to embezzling $38 million from family and friends. He came from privilege; he went to Princeton and Harvard law. Did he really need the dough? And don’t forget the billions Bernie Madoff swindled from guys like the holocaust survivor Elie Wiesel, who recently died.
Why do guys cheat, rob a gas station, or steal from friends? It’s an age-old question that we only have excuses for, like “he has a drug problem” or “he’s addicted to gambling.” Oh, don’t forget “he’s just greedy,” like he has a medical excuse that’s forgivable. And to answer why Bernie or Andrew did what they did, let’s put it this way: I don’t think they know themselves.
But we think if we could answer the question of why, we could change things for the better so that it will never happen again. Realistically we know it will always happen somewhere and we know that it’s very hard to predict. Maybe focusing on “why” some one steals is not worth our time. In our effort to understand this let’s review what we know.
Keeping Their Hands in Their Own Pockets
We know people steal and cheat when then think they won’t be caught. We also know if they think they’ll be caught, they won’t steal unless they are delusional. In other words if the “police” are out there and they think the police will catch them, they’ll keep their hands in their own pockets.
As it relates to credit unions, we know the majority of the thefts, embezzlements and fraud comes from three sources: cash, fictitious loans and investments. And we know the environment where these are prevalent. In a recent white paper reported on in CUToday.info titled Mitigating the Risk of Internal Controls a group of professionals reviewed nine cases of fraud uncovered in the last few years in Michigan. Of the nine cases, one related to loans, one to investments, and six to cash. The total cash stolen was $2.9 million, loans $1.3 million and investments $20 million.
Lack of Control
While the report tried to focus on why, it details the climate. First, with cash, there were little or no controls in place, which in essence means there were no systematic counts of cash; the “police” were MIA. Related to loans and investments, the person(s) in control had complete control. While the “police” may have been on the beat, they weren’t noticing the behaviors of those in power. In a New York Times piece, Jessie Eisinger interviewed John Breit, a Wall Street risk management specialist. He instructs the “police” to turn into “what spies call ‘humint’-human intelligence from flesh and blood.” In other words, we need to be aware of behaviors relating to power and control. As the saying goes, “behavior matters” and the behavior of others affects all of us.
Whether you’re a board or audit committee member, auditor or regulator, review the basic controls of cash and take a look at the transparencies or lack thereof. Is there an autocrat in control who affects the behavior of the organization? And remember we’d all like to get to the bottom of why people do what they do, but for now focus on those preventive measures we know work.
Ron Schmidt is with CBS Certified Public Accountants, LLC, Solon, Ohio. He can be reached at rschmidt@cbscpasllc.com.