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Crime and Fraud

the greater the potential for serious criminal activities Misuse of business time. Employees who perform non-
against the firm. work-related functions while at work are involved in
A number of internal crimes are frequently commit- fraudulent activities because they are getting paid to do
ted against a business. Among the most common are work for the business but in reality are not performing
abuse of power, embezzlement, misuse of business time, those functions. An example of this practice is an
computer and electronic information manipulation, intel- employee who surfs the Internet for several hours a day for
lectual property theft, supply and equipment pilferage, personal reasons, depriving the business of employee pro-
travel expense abuse, and vandalism and sabotage. duction during that time. A few hours of lost time here
Abuse of power. Making inappropriate financial deci- and there may not seem like much to an employee, but
sions on behalf of the business that are really intended to the aggregate loss of work time in the business as a whole
benefit the employee is one form of employee criminal can add up to a sizable loss. The misuse of business time
activity. An example of this may be seen when an by employees surfing the Internet is has become known as
employee is empowered to sign purchase contracts on cyberslacking. For more information about cyberslacking
behalf of the employer with the objective of getting the and its potential impact on business, see the bCentral
lowest price available from outside vendors. Instead of Web site (http://www.bcentral.co.uk/newsletters/bul-
doing this, an employee could sign contracts with more letins/cyberslacking.mspx).
expensive outside vendors and receive a kickback in Computer and electronic information manipulation.
return. Acceptance of kickbacks is an abuse of power and, The advent of modern technology has provided more
depending on the size of the contracts, may cost a business
opportunities for employees to commit computer or elec-
a considerable amount of money. tronic fraud. One of the most common forms of embez-
Embezzlement. One of the most common internal zlement involves the electronic manipulation of business
criminal activities is the manipulating of accounting funds so as to deposit them into personal or other third-
records to steal business funds. Employees who are well party accounts. Once the rerouted business funds are
trained in accounting techniques may be able to devise deposited into such an account, the employee may with-
sophisticated schemes to cover their connection to the draw them and spend them at will. Initially, such elec-
stolen business funds. Such criminal accounting violations
tronic fraud might seem easy to carry out, but computers
can go on for years and end up costing a business many leave behind clues that will lead auditors to the final des-
thousands of dollars. These criminal accounting practices
tination of the funds and to the dishonest employee. For
can be detected through a variety of methods, such as more information regarding the use of computers in crim-
changes in accounting procedures, coworker concerns, inal activity, see an article available on the Web site of the
and regular internal and/or external audits. Examples of company Natural Security Institute (http://nsi.org/
embezzlement warning signs may be viewed on the Find- Library/Compsec/crimecom.html).
Law for Small Business Web site (http://smallbusiness.
Intellectual property theft. One of the fastest-growing
findlaw.com/business-operations/accounting/accounting-
embezzlement-signs.html). areas of business-related criminal activity is the theft of
cutting-edge technology by workers from their employers.
Accounting crimes are very serious matters that have
Typically, dishonest employees will sell the stolen techno-
adverse consequences for a business. The stealing of funds
hurts the business’s profit margin and, in turn, stockhold- logical knowledge to a competing firm. Criminal activity
ers. Stock value is harmed because of the reduced profits in this area can be extremely damaging to any business.
showing on the books, which, in turn, can cost a business One reason is that most businesses invest considerable
the lost value of its securities. Such internal accounting sums of money in research and development to improve
crimes must be reported to the appropriate law enforce- or create new technology. The theft and resale of this
ment agencies, making the embezzlement part of the busi- information to competitors could easily cost a business
ness’s public record. Thus the business faces the many thousands of dollars in lost profits. Another is that
embarrassment associated with having been a victim of the business’s competitors can stay competitive for only a
accounting crimes, possibly weakening its image and pub- fraction of the price and thus reap even larger profits. In
lic confidence in it. An employee who gets caught com- response to this serious issue, businesses have tightened
mitting such crimes faces severe penalties if convicted. security and have asked law enforcement to vigorously
Depending on the amount of funds stolen, an employee prosecute anyone involved with this type of criminal
could be charged with and convicted of a felony and face behavior. Statistics regarding intellectual property theft
a long prison sentence. In addition, once convicted of can be found at the U.S. Department of Justice’s Office of
such a crime, it will be next to impossible for a person to Justice Programs Web site (http://www.ojp.usdoj.gov/
get another job in the business world. bjs/abstract/ipt02.htm).

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 179