Crime and Fraud
| Author | Allen Truell, Michael Milbier |
| Pages | 178-182 |
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Both individuals and businesses commit many criminal activities that cost businesses, consumers, government agencies, and stockholders considerable sums of money each year. Business crime is not new; in fact, fraudulent activities have been a common part of business operations for thousands of years. For instance, in 360 B.C.E. in Syracuse, Sicily (then a Greek colony), Xenothemis and a ship owner, Hegestratos, persuaded a customer to advance cash by claiming that a vessel was fully laden with corn. Maritime trade was at that time very risky, and many vessels were subsequently lost at sea. Hegestratos intended to exploit this risk of loss at sea three days after the ship sailed from port by sinking it. When the other passengers discovered Hegestratos's plot, he panicked, jumped overboard, and drowned. This early example illustrates that criminal, and especially fraudulent, activities have existed within the world of business for some time and, unfortunately, will probably continue to do so.
Under modern law, for a crime to have occurred, an illegal act must have been committed and intent to commit the act must be shown. A crime is a violation of local, state, federal, or international law and is punishable by the appropriate government authority. Criminal activities are usually defined as applying to a specific type of behavior or action. Criminal activities can be committed by individuals against a business as well as by businesses through the actions of their employees against consumers, the general public, and/or stockholders. Statistics regarding a variety of crimes committed in the United States can be found on the Federal Bureau of Investigation's Web site (http://www.fbi.gov).
Business-related individual criminal activities are normally broken down into two categories: internal and external.
Internal crime occurs when an employee steals from or commits some other offense against the business. For example, depending on their jobs, employees may have access to business files, records, or sensitive financial information. The dishonest employee could then use this information to commit a crime against the business. Generally, the higher in the business the employee,
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the greater the potential for serious criminal activities against the firm.
A number of internal crimes are frequently committed against a business. Among the most common are abuse of power, embezzlement, misuse of business time, computer and electronic information manipulation, intellectual property theft, supply and equipment pilferage, travel expense abuse, and vandalism and sabotage.
Making inappropriate financial decisions on behalf of the business that are really intended to benefit the employee is one form of employee criminal activity. An example of this may be seen when an employee is empowered to sign purchase contracts on behalf of the employer with the objective of getting the lowest price available from outside vendors. Instead of doing this, an employee could sign contracts with more expensive outside vendors and receive a kickback in return. Acceptance of kickbacks is an abuse of power and, depending on the size of the contracts, may cost a business a considerable amount of money.
One of the most common internal criminal activities is the manipulating of accounting records to steal business funds. Employees who are well trained in accounting techniques may be able to devise sophisticated schemes to cover their connection to the stolen business funds. Such criminal accounting violations can go on for years and end up costing a business many thousands of dollars. These criminal accounting practices can be detected through a variety of methods, such as changes in accounting procedures, coworker concerns, and regular internal and/or external audits. Examples of embezzlement warning signs may be viewed on the FindLaw for Small Business Web site (http://smallbusiness.findlaw.com/business-operations/accounting/accountingembezzlement-signs.html).
Accounting crimes are very serious matters that have adverse consequences for a business. The stealing of funds hurts the business's profit margin and, in turn, stockholders. Stock value is harmed because of the reduced profits showing on the books, which, in turn, can cost a business the lost value of its securities. Such internal accounting crimes must be reported to the appropriate law enforcement agencies, making the embezzlement part of the business's public record. Thus the business faces the embarrassment associated with having been a victim of accounting crimes, possibly weakening its image and public confidence in it. An employee who gets caught committing such crimes faces severe penalties if convicted. Depending on the amount of funds stolen, an employee could be charged with and convicted of a felony and face a long prison sentence. In addition, once convicted of such a crime, it will be next to...
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