Firstly, one should not take these cases as a reason to distrust employees or implement draconian controls and processes. There is an inherent level of trust in the employer-employee relationship and this should be respected. The lessons here are some simple steps to mitigate the risk of these behaviours as part of everyday business.

The phantom transport company

Case: A branch manager in a semi-regional branch created a transport business complete with ABN and registration. They would repeatedly create PO’s for phantom transportation of fleet across deliveries/returns and change-overs invoicing the rental company.

How it was discovered: By chance. A payment issue identified by the AP department led to the business address and contact details leading back to the manager.

How it could have been avoided: This was a complex case, firstly, the perpetrator was the branch manager who, as the owner of the P&L, should have been the first person to notice any irregularities in purchasing. Secondly, the semi-regional location of the branch grants it a level of autonomy in engaging smaller, local suppliers.

Procurement fraud is unfortunately common in many businesses. One method is to centralise procurement however this can come at the expense of agility and responsiveness at the local level. Recommended actions include: implement strong supplier vetting including trade references (which are checked just like references on a CV), setting clear procurement approval levels with escalation, ensure procurement systems are integrated with the ERP (e.g. link PO’s to hire contracts), build appropriate reporting systems to flag irregularities.

Refunding the EFTPOS

Case: This one is pretty low-tech but no less damaging. An employee (assistant branch manager) was responsible for reconciling the cash draw and transactions for a large branch with many cash customers. It turned out that the employee was frequently refunding transactions to their personal EFTPOS card and concealing any variance in the reporting.

How it was discovered: Initially, this was surprisingly allowed to continue for a number of months before the perpetrator began increasing from small amounts to ever larger sums. Eventually, the discrepancy in ‘cash at bank’ was picked up by AR and investigated.

How it could have been avoided: Cash/Card transactions remain a common practice for many rental providers. A simple exception report could have quickly identified suspect transaction reversals in this case. Other methods include insisting on all refunds being processed on the same card/payment method as the purchase (transaction matching), regular reconciliation of ‘cash-at-bank’, encourage customers to utilise direct transfer.

Fuelling up the family

Case: Another sadly common source of fraud is fuel cards often provided to both sales reps and service techs. In a particularly egregious example, an employee made a habit of taking his family down to the local service station on the weekend and filling everyone’s cars paying with the company fuel card.

How it was discovered: Whilst smart enough to realise that the recorded odometer reading provided on the transaction had to be incremental, this was always going to catchup with our thief as it doesn’t take $900 in fuel to drive 120km a week. In this case, it was the fuel card provider who identified the discrepancy and advised the hire company.

How it could have been avoided: Engaging a fuel card provider that offers robust fraud detection can mitigate this risk however in this case it was allowed to escalate into the tens of thousands of dollars before being identified. A simple exception report should have quickly flagged this spending behaviour as being an outlier.

Charity begins at home

Case: Free hires are a common occurrence in equipment rental supporting local charities and events whilst providing a relatively cheap source of community goodwill and advertising. This can cross the line however when an employee receives either financial or other personal benefits as a result. In this example, the employee provided equipment to a local community market on a regular monthly basis. It was discovered that the employee was being paid both monies and services in return for the equipment provided.

How it was discovered: Ironically a dispute over equipment damages brought this case to bear. The hiree refused to pay for damage to an item in the belief that the payments they made should cover the damage waiver requirements. Once escalated above the branch the truth quickly came out.

How it could have been avoided: Local managers should be given a level of autonomy and discretion in engaging local events and low-cost marketing opportunities. However, an appropriate level of oversight on ‘free hires’ should be maintained to ensure both the legitimacy of the receiving party and benefit of the transaction. A regular review of free hires through simple reporting should be enough to manage this risk.

Daddys boy

Case: ‘Staffies’ – the practice of equipment rental employees being able to utilise assets for personal use at little or no cost is common in the industry. This employee was a more than frequent user of this facility. He constantly had equipment for ‘personal use’ for weeks at a time. Eventually, it was discovered that his father owned a concreting business and employment of his son was a ruse to utilise as much free equipment hire as possible.

How it was discovered: It took a few months, but the pattern was quickly identified and the employee confronted. After his Staffie privileges were rescinded he promptly quit.

How it could have been avoided:  Equipment rental employees don’t get many perks – they work construction hours without any of the RDO’s or other benefits of the industry, taking away Staffies is not the answer. However, this benefit is a privilege not a right. Withholding this benefit for the duration of a probationary period is both fair and reasonable. Also, limitations on both quantity and duration are equally fair.

Feeding the family

Case: A more recent phenomenon, this employee racked up thousands of dollars of transactions on their company credit card in Uber and Uber Eats transactions over the course of a few months. Before you pass too much judgement, this author has fallen foul of this offense… The app allows you to save multiple profiles and payment methods, for those that travel frequently this can be a very beneficial feature. It can be easy to forget to change profiles when on the run. In this case, the offending was more egregious covering multiple transactions over multiple months. It should be noted that the app does allow you to rectify/change the profile/payment method within ~30 days when a mistake is made.

How it was discovered: Ultimately, this was a failure of the approval/escalation process in the business. The manager should have noticed the transactions in the approval process but did not. Eventually, an AP audit picked up the transactions along with purchases at liquor stores and other questionable providers.

How it could have been avoided: Every financial institution providing company credit cards allows either direct or indirect access to transactions. Simple exception reporting should have flagged these transactions immediately even before the failure of the responsible manager to notice them.

Summary

Fraud occurs in every industry at various levels, employee fraud is a betrayal of trust that can sting more than most. We must trust our employees and give them the freedoms they require to deliver for our customers in a timely and efficient manner. However as noted, there are some simple (and non-intrusive) mitigating steps we can take to minimise the risk of employee fraud.

Reach out to the team at Wolf & Bear Services james@wolfandbear.net.au 0417 344 116 to find out how we can help to implement the reports and processes you need.

*Disclaimer: The author of this article has worked with > 20 rental clients over 20 years. At no point does this content identify any individual or company related to these examples of alleged behaviour or the time era they occurred.