How to Spot White Collar Crime

November 28, 2012

The term “white collar crime” was first used by sociologist Edward Sutherland in 1939, when he described it as “a crime committed by a person of respectability and high social status in the course of his occupation.” Since then the term has been further defined as a financially motivated, non-violent crime conducted by business or government employees, and includes such activities as fraud, bribery, Ponzi schemes, embezzlement, insider trading, money laundering, copyright infringement, money laundering, forgery, identity theft, and various cybercrimes.

And unfortunately, the stories like Bernie Madoff, which hit headlines several years ago, are only the tip of the iceberg. Most of this crime flies under the radar of most media outlets, but Forbes online has had a White Collar Crime blog for several years.

The Association of Certified Fraud Examiners put forth a profile of white-collar criminals: young, well-educated, aggressive, go-getters. In other words, they could be anyone in your company.

So how can you identify a potential criminal before they are able to cause severe damage to your organization?

The most common behavioral clues that can signal a problem are a person who is living far beyond his means, and a person who is experiencing financial difficulties. Of course, in this economic environment, that describes the majority of employees everywhere.

Only seven percent of white collar criminals had been previously convicted of an offense – which means that even a great background check will not weed out potential problems.

Other potential red flags for criminal behavior: the perpetrator refuses to take blame for mistakes, instead blaming others; he exhibits a feeling of entitlement, has difficulty accepting criticism, and feels victimized.

Many white collar criminals feel that they are owed something by their company, and that in robbing the company, they are not really hurting anyone. The criminal sees other people driving fancy cars, living in mansions, and otherwise displaying a lifestyle that he wants but cannot afford. Yet he feels entitled to this lifestyle, that he deserves the fancy cars and houses, and therefore he feels justified in stealing in order to obtain what he wants.

The thing about while collar crime that is so difficult to reconcile with crime in general is that the people who commit these crimes are not poor. It is their own lack of personal responsibility and feelings of entitlement that drive them to attempt a “short cut” to the good life, rather than working for it like others do.

White collar criminals are far from dumb. Sometimes their schemes are incredibly sophisticated, and they generally know how to cover their tracks thoroughly. So it can be extremely difficult to detect the crime before a huge amount of damage is inflicted.

Look for missing or altered documents, deleted computer files and emails, and unexplained accounting transactions. Keep an eye out for employees who have an unusually close relationship with one particular client or vendor.

If you bring in an outside auditor to evaluate your accounting practices once a year, you can potentially head off any fraudulent activities before it gets too far out of hand.

Another method is to encourage and reward whistle-blowing. Insiders are far more likely to spot suspicious activity before the auditors do, and a comprehensive program by which employees can report any unusual behavior is one of the best ways of heading off fraud quickly.

In hindsight, a white collar crime is generally so obvious that you wonder why it wasn’t discovered sooner. Keeping that in mind, you can put programs into place to make sure it never happens to your company.