The Cruciality of Vigilance

Dave Gavin
KCR Builders Providers

HAI Board member and owner of KCR Builders Providers in Kimmage, Dave Gavin shares his experience of the effects of staff misconduct and some preventative measures. 

Back in April, I mentioned to Annemarie about my lightbulb moment that might help someone else in the association avoid what I went through. If it does happen, then members know what steps to take and also know that through HAI, there is a support network there to help.

Looking back, it’s easy to be critical of what happened at KCR Builders Providers and to blame myself for not spotting the problem earlier, but I now look at it as a learning experience, and one I hope is never repeated. If it is, we all will know how to react and what actions to take. To make this work, we will need HAI members to share their experiences, to help improve our workplace security, the platforms and procedures, and the way we hire staff; therefore helping reduce the opportunities for fraudsters to work in our industry.

A quick background of KCR Builders Providers:

• Small growing family business
• Based in South Dublin
• With the rising economy we have ambitious growth plans which we were already implementing
• Second premises led to distraction
• Everything was going to plan – steady growth, customers, suppliers and staff all seemed happy, I was also very positive and looking forward to the future

One area where we constantly struggled with was stock control, so we installed intact IQ to get the latest software in order to improve growth potential in late 2014, although the annual stock take was never correct, despite the new IT platform.

In late January 2017, by accident, I discovered one incident of gross misconduct by the fraudster, involving the misappropriation of cash and stock. In early February 2017, enough incidents of fraud were identified to start disciplinary procedures. This was done with the help of a HR company. All staff had contracts of employment so it made it easier to follow procedures. It took six weeks to dismiss the fraudster and another six months to allow for the fraudster to appeal. After this I started to look at the reasons why it happened and how to prevent it happening again. The ‘Fraud Triangle’ which is a widely recognised theory explains why fraud happens. A simple triangle explaining why a fraudster acts in the manner they do:

• Pressure, financial or emotional, on the employee
• Opportunity, ability to execute a plan and get away with it
• Rationalisation, personal justification of the fraudster’s actions (I deserve it)

Why and how did it happen:

I gave too much trust to one person on long service. We are a growing business and the controls that were in place were insufficient for a larger business. I didn’t follow my instinct; if you think there is something amiss, there probably is.

Who was affected:

Other staff that remained working after the fraudster was removed were affected for a number of reasons. The initial lack of information available to them in line with employment law and the HR process led them to be let down, as I couldn’t openly discuss the fraud. As well as this, new procedures were implemented, such as better cash security and new goods-in protocols, which led to additional paperwork. The remaining staff also felt that they were being unfairly watched. For this reason, staff morale was low, resulting in an exceptionally high level of turnover. Within six months, all the trade counter staff had changed. The only advantage to this was it was easier to implement new procedures and they did not know previous staff. In addition to the aforementioned procedural changes, several other protective measures were taken. Cash on delivery was abandoned, new warehouse dockets were introduced, a ‘no money no goods’ policy was strictly adhered to, and hand written dockets were no longer allowed.

Other measures taken

• If a credit customer was on stop that meant no goods of any sort.
• Warehouse staff not allowed to start loading customer until they had an official docket.
• Credit notes procedures reviewed.
• Till cash-up process tightened up.
• Stock that never seems right monitored closely

Customers were also impacted:

• Customers don’t like change, they like a familiar face, and someone who can read their minds!
• As with staff, no one could explain to customers what had happened to the fraudster.
• Customers heard stories in the local community as to what happened, and they didn’t know what to believe.
• New inexperienced staff and new procedures led to a slower customer service.
• New staff did not know customer habits and how to manage customer moods.
• Not all cash customers liked having to pay when they had no cash or card on them.

I was affected, along with my family:

I still remember the day I discovered the fraud like it was yesterday, it’s not something that one forgets too easily. I was very upset and let down, there was a major breach in trust with a long -term staff member who I considered somewhat a friend, which then felt like a messy divorce. I was constantly behind trade counter trying to train new staff and deal with an expanding business; the stress of which caused many sleepless nights and the necessity to micromanage everything about the business 24/7. There was no time off for holidays. Some days I just didn’t want to get out of bed and face into another day of feeling like I lost control of the business. It took months for me to regain a level of comfort within the business again. My staff employer relationship is more formal now. As I had recently taken over the business from my family the circle of people I could share problems with was reduced leading to a feeling of isolation.

What have I learned from this?

I was ill prepared for an event like this. My advice is to assume this will happen and be prepared as best you can. Have a fraud plan in place, such as a simple list of items, e.g. review who are the key holders; Do building access and alarm codes need to be changed? Inform staff but don’t worry them; Call security/monitoring company; Let key holders know of any changes; Inform insurance company and accountants; Forensic accountants to see financial loss; Move quickly.

Positives

HAI gave me the opportunity to share my experiences at The Hardware Conference in May and the support I got from the industry and my peers was outstanding. From this I have formed friendships and made contacts that I would never have thought possible. The business still grew. I lost weight from the stress of it all (this was on my To Do list anyway). Now there is a strong dedicated team working with me who understand the new procedures and policies.

Key Points

• Controls are necessary and must be followed through once implemented.
• Always keep a staff/employer relationship strictly business.
• It doesn’t cost a lot to have a good HR company to support you in a situation like this.
• Be prepared for worst case scenario – what do I need to do in the case of suspected misappropriation of assets or fraud.
• Proper stock control is essential.
• Proper CCTV is a great help.
• Incidents like this affect everyone in the organisation.
• I have learned that there is no obvious place to turn to for help if a business was faced with a similar situation.
• That controls must be put in all parts of the business not just sales and stock.
• Culture – understand what and where are peoples pressure points
• Encourage positive communication within the workforce, some might call this whistleblowing.
• Show that gross misconduct is punishable.
• Ask different and straight questions at interview stage.
• Always follow up on references.

If you have been affected by this and want to talk to Dave please contact HAI on 01 298 969 or email [email protected]

This Business Support article appeared in the November/December 2018 edition of The Hardware Journal.