WHITECOLLAR CRIME AND THE EFFECTS ON THE WORK ENVIRONMENT CourtneyGreen UndergraduateJunior NorthwesternOklahoma State University December5, 2017 WhiteCollar Crime and the Effects on the Work Environment American businesses face the threat of white collar crimeevery day. White collar crime occurs when a person abuses their professionalpower by using sensitive information to gain access to funds that do not belongto them. Examples of white collar crimes include embezzlement, tax evasion, bribery,and money laundering. Financial establishments are vulnerable to white collarcrime due to employees having access to information which is used to stealmoney. White collar crime not only effects the business itself,but it takes a toll on everyone associated with the company.
When stockholdersinvest time and money in a company, they are trusting that institution will upholdtheir end of the deal. The scenario least expected is to receive a phone callbeing notified that investment funds have been stolen. This occurrence couldruin an individual’s life, possibly resulting in bankruptcy or even homeforeclosure. According to Saul Rosen,Oftentimes,the victims of white collar crimes believe they are positioning themselves fora stock that is sure to take off soon, or a startup that looks promising, butall the while, the white collar criminal is just taking their money and givingthem falsified data instead (Rosen, 2016). Thieverycauses people to feel violated which leads to a less trusting society. Abusiness that has encountered white collar crime within their organization islabeled as an unstable and unreliable company. Potential customers will be lesslikely to offer their business due to this lack of trust.
A revenue drop can beexpected because of the decline of business transactions. When business profitsdecrease, employees begin to search for other employment opportunities in fearof losing their current job. Whitecollar crime negatively impacts customers, staff, and management by disruptingthe daily operations and causing the business to lose large amounts of money. Background In 1939, EdwinH.
Sutherland created the phrase “white-collar crime” (Williams, 2006). Heemphasized that society identified criminals in the 1930’s as those who steal,murder, and commit arson. Criminologists had not yet recognized the idea ofsuccessful entrepreneurs committing non-violent types of crimes. In Reckless’ study (as cited in Williams,2006) “Gilbert Geiss criticized Sutherland’s work, claiming that the majordifficulty with White Collar Crime ascriminological research was in Sutherland’s inability to differentiate betweenthe corporations and the actions of the corporations’ executive and managementpersonnel.” There are many interpretations of who is responsible once whitecollar crime occurs. Is the business itself to blame? Or are the individualswho manage daily operations liable for allowing such an act? First andforemost, the criminal who committed the unlawful act is responsible for theirown actions.
With technological advances developing at an aggressiverate, criminals are finding new methods to scam people out of their money.Electronic devices enable criminals in obtaining access to sensitive financialrecords and information. With the click of a button, a white collar criminalcan steal a person’s life savings. According to Williams (2006), “Embezzlementsare usually difficult to detect and even more difficult to prove.” White collarcriminals have a better chance of getting away with their crimes because of theentire transaction being electronically performed. White collar crimes commonlycarry on for a substantial length of time when internal controls within thecorporation are weak. It is common for an employer to drug test and complete abackground check before hiring a new employee.
These requirements typicallyeliminate the possibility of a criminal being hired at most places ofemployment. Although, white collar criminals are very rarely caught and thisprevents any kind of criminal record being exposed by employers. To avoid theevent of a white collar crime occurring in an organization, management andstaff must have the ability to identify the warning signs. According to the FBI’s study (1989), About us: our post 9/11 transformation: white-collar crime, TheFederal Bureau of Investigation (FBI) formed a Financial Crimes Section in the1980’s who specializes in the investigations of white collar crime (Price &Norris 2009). These units fight financial crimes such as embezzlement, moneylaundering, securities fraud, and the list goes on and on. These mentionedcrimes will extensively be defined and explained in the section below. Typesof White Collar Crime Embezzlement isdefined as “the fraudulent appropriation to his own use or benefit of propertyor money intrusted to him by another, by a clerk, agent, trustee, publicofficer, or other person acting in a fiduciary character (Williams, 2006 p.22).
Embezzlement occurs when funds are misused for personal gain by theoffender. Individuals that embezzle, typically work for the company they havestolen from. As previously mentioned, employees have access to financialaccounts and records that should not be altered without authorization by their superiors.Offenders believe that embezzlement does not personally affect anyone but thebusiness when they commit the unlawful act. Who operates these companies? Employeesand managers are responsible for ensuring the company is properly functioningdaily and depend on their salaries.
A business must bring in revenue tocontinue its operations. When revenue is low due to an employee stealing funds,there is a high possibility the organization will have to discharge staffmembers. Accordingto the Association of Certified Fraud Examiners 2008 Report to the Nation on Occupational Fraud and Abuse, “88.
7%of the fraud cases reported were related to asset misappropriation, or employeeembezzlement, with an average loss of $200,000″ (Pedneault & Davia 2009).This total could make or break small companies that depend on lower scaleprofits. $200,000 is likely four workers’ salaries for the year. When thesefunds are discovered missing, the loss would inevitably ruin four staffmembers’ lives. Embezzlement is one of many white-collar crimes that negativelyaffect the work environment and all that are dependent on the organization. Moneylaundering is another example of white-collar crime and occurs across theglobe.
According to Kevin McCoy (2017), “financial criminals typically place the money into the financialsystem in ways designed to avoid drawing the attention of banks, financialinstitutions or law enforcement agencies.” Individuals that money launder areusually drug traffickers that want to legitimize their illegal funds. Theprocess entails depositing the illegal funds into a business, so they can hidethe profits within the regular operational revenue. Money laundering isconsidered a white-collar crime because business organizations are the onlytechnique available to assist in hiding funds illegal funds. The IRS (InternalRevenue Service) is notified of all transactions totaling $10,000. Therefore,money launderers deposit amounts less than $10,000 at a time to avoid notifyingthe IRS of illegal transactions.
The difference between embezzlement and moneylaundering is business owners must be aware of the illegal activities sincethere are excess funds being deposited into the company’s bank account. The businessowner is approached by the drug trafficker and typically offered a portion ofthe profits, if they do not report the illegal activities. Money laundering isalso known as “cleaning money”. For business owners, these types of agreementsare hard to reject.
Operating a successful business is challenging and many faildue to lack of revenue. Money laundering offers are a prayer answered forowners when this type of set back is encountered. McCoy states, “After the funds enter thefinancial system, the money is layered, or shifted through a series oftransactions designed to create confusion and complicate the paper trail forinvestigators (McCoy, 2017). If money laundering is suspected, investigatorswould inevitably turn to the accounting staff for answers regarding thesuspected illegal activity. The accounting staff should beaware of the illegal activities taking place since bank statements are reviewedat regularly.
If they are not aware, a reliable employee should report all whoare associated to the authorities. Thereare a few steps involved when the money laundering process has been initiated.The process takes a certain amount of time to be successful. The next steptaken by the offender is the integration of misappropriated funds. McCoy (2017)states, “This final stage is used to help shieldfinancial criminals by providing a plausible explanation for where themoney came from.
Examples of integration include purchasing and reselling realestate, investment securities, or other financial assets with money fromillicit activity”.At this stage, thefunds have been “cleaned” by the business and are ready to be moved toadditional location. This is the time when the offender searches for otheropportunities that are of interest. Just as McCoy (2017) stated, real estate,cars, and investments are purchased since the illegal funds are hidden as validprofits earned by the offender. Not all money launderers are drug traffickers,but this method is the most widespread practice among offenders. Securities fraud is the most widely publicizedwhite-collar crime scheme in America. This type of white collar crime is alsoknown as investment fraud. Securities fraud is accomplished by offenders whotake advantage and misappropriate the funds received from customers.
It iscommon for criminals to persuade potential investors to participate inseemingly successful ventures. Falsified information is typically given to the investor,so they believe the investment will return high volumes of revenue. Theoffender accepts the resources received and uses the money in a differentmanner than what was agreed upon.
The customer generally has no way of knowingtheir assets are inappropriately being used until they receive an annualstatement in the mail or they are not receiving the profit they expected withina certain time frame. A famous case of securities fraud is the Ponzi schemethat occurred in 2008 (Yang, 2014). Yang (2014) stated, “A well-respected financier, Madoffconvinced thousands of investors to hand over their savings, falsely promisingconsistent profits in return.” Madoff used money that was given to him byinvestors to pay off previous stockholders that he owed money to. Anotherphrase for this type of scheme is a pyramid scheme. In a pyramid scheme,the lower investors provide the funds to be paid to the higher investors. BernieMadoff was sentenced in 2008 to 150 years in prison for the Ponzi scheme heorganized (Yang 2014). According to Yang (2016), Ponzi schemes do not last for asubstantial amount of time.
Yang states, “The setup eventually falls apart after: (1) The operatortakes the remaining investment money and runs. (2) New investors become harderto find, meaning the flow of cash dies out. (3) Too many current investorsbegin to pull out and request their returns (Yang, 2014).” There arepreventative measures that can be taken to avoid encountering white collarcrime (Surrette, 2016). Solid internal controls should be theprimary objective in operating a successful business. Internal controls are therules a business abides by to achieve financial goals. For instance, one employeemay receive funds for receipt, another will deposit to the designated account,and one will record the payment to the general ledger.
This process eliminatesthe possibility of one employee having all financial control and duties. Pedneault& Davia (2009) state, “Underthe requirements of the Sarbanes-Oxley Act (SOX), the management of anypublicly traded entity is required to identify and assess the risk offraudulent financial reporting within the entity’s operations, as well as toassess the adequacy of their internal controls addressing the identified risks.”Financial auditing is ayearly and necessary requirement in business corporations. If there happen tobe weak internal controls, the auditors usually recommend changes that can bemade to strengthen the organization (Pedneault & Davia, 2009). When auditfindings are revealed, the firm typically gives the business a year to make theimprovements before the next year’s audit is performed. TheWork Environment White collarcrime can causes friction within the work environment.
Co-workers of theaccused will tend to feel duped since they trusted the offender to be morallysound. Eight hours a day is the typical work day for most white collaremployees. Staff spends more time around their co-workers than around their ownfamilies. Co-workers tend to grow close and relationships are developed due tospending hours a day together. Hostilitytends to rise in a work environment when there is an element of betrayal.
It ispossible for an innocent employee to be accused of fraud by guilt of associationwith the offender. Inevitably, fingers will be pointed at each other in fear oflosing their job stability. The offender will use every excuse they can thinkof to deter the blame away from them. This is when the disloyalty of theoffender negatively affects personnel working in the same department. Thefear of the unknown can cause the successfulness of a company to significantlydecline. Current employees may decide to seek out other employment opportunitiesdue to the organization experiencing turmoil.
During an active investigation ofwhite collar crime, the accused will be placed on leave until the final rulingby the judge is established. Until then, someone will be required to pick upthe slack and cover the additional duties for the offender. This could possiblybe another reason why staff would want to permanently leave the establishment.Adecline in company morale is one consequence of a fraud investigation.
Freedman(n.d.) states, “Any association with a company that has perpetrated or sufferedfraud can be troubling and embarrassing for the people who work there.” Mostemployees take pride in their work and feel accomplished by the end results.This confidence will fade due to being employed by a company that has been brandedby fraud. Anotherconcern for businesses, are the increased future audit costs caused by pastfraud detection (Freedman, n.d.
). Auditors will carefully examine the financialstatements since there has been a fraud investigation in the past. Freedman (n.d.),says, “When an auditor is required to perform more procedures, the cost of theaudit will increase.” These unforeseen costs can damage the organizationalrevenue and significantly reduce the company’s total budget.Analysis