“The Three Kinds of Fraud – Recognizing and Avoiding Them at Work”

“No one will find me to have knowingly committed fraud.”

– Bernard Ebbers
(Inmate #56022-054, Oakdale
Federal Correctional Institution)

ACTUAL “CASE HISTORY: Every two years, Hal had to certify to his employer, a large law firm, that he had completed the Continuing Legal Education (“CLE”) courses necessary to maintain his law license. He did so although he had been so busy he had not completed two of them. He figured he could make it up during his upcoming vacation. When he was asked to attend a meeting with the Managing Partner, he thought it was to discuss his anticipated promotion to partner status. Instead, he was told he had committed a very serious fraud by his CLE certification misstatement, and was therefore fired, with a recommendation that he report himself to the Attorney Disciplinary Board for possible license suspension or disbarment. Hal’s misstatement sure was a costly mistake!

Gilbert was a Marketing Director for a company that sold franchise opportunities for a new “healthy” fast-food chain. The marketing brochures highlighted how fast-growing the franchise was. In fact, it noted that 23 new stores had opened up in just the last 12 months! Months later, he was quite taken aback when he was named in a lawsuit by three franchise purchasers who had lost money on their franchise investment. Their lawsuit alleged that Gilbert had participated in a fraud. Why? Because while it was true that 23 new stores had opened up in the previous 12 months, it was also true – and not mentioned in the marketing materials – that 41 had gone bankrupt in that same period. A fairly costly omission, no?

Ariana was perplexed. Her offer letter stated that she would be awarded a 3% ownership interest in her employer “upon approval of the Board of Directors at their next meeting.” She had resigned her previous job for this very opportunity to become an owner of a company. After hearing nothing in six months, in exasperation, Ariana asked for a meeting with the company President, and a clear answer at the meeting. Sure enough, she got her clear answer: the Board had voted not to award her any stock ownership interest, without reason. It sure didn’t seem like they ever really intended to give her the ownership interest in the first place. She felt fooled and tricked; even defrauded. A costly lesson for her.

LESSON TO LEARN: What Hal did, what Gilbert failed to do, and what happened to Ariana were, in each instance, kinds of fraud that can happen at work. It could happen (1) to you, (2) by you, (3) by your employer, (4) against your employer, and (5) in any number of other ways. If you are not careful in your statements and actions, and mindful of those of others around you, you could be harmed by fraud at work. I hear about such situations often.

The word “fraud” sounds so negative, so scary, and so accusatory. It is all of those things, but at the same time “fraud” is a simple concept, and one you should try to “avoid like the plague” in light of its implications and possible consequences to you. Being accused of “fraud” – or similar words, like deception, misrepresentation, misleading, and dishonest – can ruin your reputation and end your career. Likewise, being the victim of fraud can be both costly and hurtful.

Four different aspects of today’s workplace each mandate that you understand, and avoid, any situation that could be characterized as “fraud”:

First, “zero tolerance.” We live in a very “zero tolerance world” when it comes to workplace allegations of improper behavior. Even “whispered” allegations against you can be devastating. If your colleagues, your employer or your customers come to believe, rightly or wrongly, that you have not been honest with them, it could well result in immediate dismissal. That can happen to any employee, even one with a signed, long-term contract.

Second, the internet. We live in a very information-rich world, in which accusations against you – even if you are not “found guilty” – can become known worldwide, follow you into your future, and be near-impossible to erase.

Third, increased competition. So many companies and organizations are under so much financial pressure these days that we are seeing many of them encouraging their employees to “bend the rules,” “stretch the truth,” and “cut corners” in any number of ways. An employee can easily get caught up in a fraudulent scheme hatched by others, and even blamed for it. And companies have to keep a keen eye out for others – including customers and vendors – from defrauding them.

Fourth, seemingly lowered integrity standards. The world, and that includes the world of work, seems at times to have recently suffered from “lowered standards” of honesty. Everyone seems a bit less confident that showing good faith will result in others showing good faith in return. When it comes to collecting what you have been promised and are due, it seems to be a bit of a less dependable world. And there seems to be more “fraudsters out there” than ever before.

In recent times, Volkswagen has been accused of fraud by deceiving environmental regulators as to the fuel efficiency of their diesel automobiles. General Motors has been accused of fraud by failing to tell auto safety regulators of over 100 deaths resulting from a defective ignition switch. Investors in mortgage-backed securities have collected billions in damages for being defrauded by mortgage processors. Surely, certain individuals were at fault, and certain others were not. If there is a problem where you work, will you be accused?

But, “forewarned is forearmed.” There is a lot you can do to protect yourself, your interests, your career, and your reputation, from fraud against you, your company, and your clients, and accusations that you engaged in fraud, as well.

No matter who is to blame, and who may be victimized, it is wise to be vigilant to the possible occurrence of such situations, and be cognizant of their telltale signs. Prevention is the name of the game in this context.

WHAT YOU CAN DO: Basically, there are three kinds of fraud, and all are sometimes seen at work. Learn to recognize them, and consider what you will do if you find fraud in your midst:

1. Definition #1: “Intentional Misstatement of Material Fact upon which Another Person Is Likely to Rely to His, Her, or Its Detriment” – This is the most common definition of fraud. In essence, it is intentionally fooling someone and in doing so hurting them or their interests. (See Hal’s story, above.) It might be helpful to define a few words in the definition:

“Intentional” means, simply “not accidental,” such as a typo, as when a 51-year-old accidentally types a form listing her age as 15.
“Misstatement” includes spoken words, written words and digital communications.
“Of fact” means “not an opinion.”
“Detriment” means any kind of damages, although emotional damages would rarely, if ever suffice.

Anyone who lies on their resume to get a job has committed “resume fraud.” Is a typo an act of fraud? No, not if it was an accident. Is falsely claiming you graduated from college an act of fraud? Yes, most likely, as it is a bit hard to believe someone would not know if they attended graduation. Note that statements of opinion – and not fact – cannot be fraud.

Is it an act of fraud to tell a customer of your employer that the clothing you are selling to it is made of pure wool? Yes, if you know it is not pure wool. This would be an act of fraud by you, and perhaps, too, by your employer, if your employer was aware of your misstatement of fact.

If your employer has falsely certified to the local fire department that it has working fire extinguishers in each hallway, it is fraud, but not if your employer really believed the they were all in working order.

This first kind of fraud takes place where we find false statements “intentionally uttered or written” – not accidentally. “Material” essentially means “meaningful.” This is the easiest kind of fraud to recognize, in that significant false statements are relatively easy to spot, and circumstances generally indicate whether they are either accidental or intentional.

Employees can be victimized of such fraud at work, for example, when they are told that upcoming job cuts or compensation reductions will not affect them, even when they have been slated for position elimination or compensation reduction.

2. Definition #2: “Intentional Omission of Material Fact upon which Another Person Is Likely to Rely to His, Her or Its Detriment” – This is the second most common definition of fraud. It is essentially tricking someone by failing to disclose something that should have disclosed. (See Gilbert’s story, above.)

Imagine, for the moment, that a prospective employer requires that you complete a form that has questions on it, among them, “Have you ever been fired or asked to resign?” Imagine you leave the space blank, which might give some people the impression that your answer was “never.” If you are hired, and it is later discovered that you were fired from three earlier jobs, you may be fired for fraud in the hiring process by your “intentional omission of a material fact.” .

By the way, “omission” simply means “not providing information it would be reasonable to provide in order to give an honest and accurate accounting of information.”

Employees can be affected by such fraud at work when, for example, they are intentionally denied information that is relevant to their compensation. For example, one client was lured to a new employer with a bonus plan that he was told “should yield a bonus this year of at least $200,000,” while the company’s financial results for that year were so dismal that he ended up with no bonus at all. Surely a material omission of a material fact.

Doing “Side Work” without permission can be “cause” for termination. We offer a “Model Memo Requesting Consent to Doing Side Work on Your Own Time.” It offers “What to Say, How to Say It.™” To get your copy, just [click here.] Delivered by Email – Instantly!

3. Definition #3: “Making a promise without an intention to fulfill it, in order to get something of value in return.” This third definition of fraud is often confused with a simple “failure to fulfill a promise” or “breach of contract.” The difference between those two behaviors and actual fraud is that, in fraud, when you made the promise, you had no intention to fulfill it. (See Ariana’s story, above.)

Imagine for the moment, Bob made an arithmetic error regarding his bank balance, and gave a check to a plumber that “bounced” as a result. Things like this happen all the time. Imagine, though, that Tom gave a check to a plumber to have a heating system repaired, but the checking account that it was drawn on had been closed two years earlier. And, also, that Tom had given such checks to six others during the previous two months. Bob’s “bad check” was an error. Tom’s “bad checks” were fraudulent, and possibly even criminal. The difference is intent at the time of giving over the checks.

Employees can be victimized at work by such fraud when they are lured to take a job, or encouraged to remain in a job, by being told, for example, that they can expect a bonus of at least a certain amount, or stock ownership in the near future, while the employer has no such intentions.

4. Employees are advised to be especially careful with their own promises, assurances and representations to employers and to customers. Strive always for maximum accuracy, clarity, honesty and comprehensiveness in your presentations to management and customers. Ask yourself these two important questions: (1) Do your statements tell the real story?, and (2) Does this presentation give the complete picture? If it doesn’t, revise your statement and presentation.

Imagine that you were in charge of ticket sales for a large theater that had 600 seats, and was having a great concert on Saturday night. Imagine, too, that you were encouraged to sell 800 tickets to that show, and were told “Don’t worry – lots of people don’t show up.” Selling tickets for seats that may well not be available puts you in the “fraud” position, for sure. In fact, it may be setting yourself up for being scapegoated if someone complains or sues.

Consider inserting cautionary language into statements of fact, and especially statements of fact regarding future events. Such as “Of course, no one can predict the future, and so these are opinions or projections, only.”

Take all criticisms of inaccuracy, misunderstanding, and errant omissions quite seriously. They could place a dark cloud over your reputation for a long, long time.

Working from home can be helpful in many ways, but you need permission to do so. We offer a Model Memo Requesting Telecommuting or Flextime for your adaption to your own facts and circumstances. It shows you “What to Say, and How to Say It.™” To get a copy, just [click here.] Delivered by Email – Instantly!

5. Employees are also advised to be careful about their depending upon employers’ casual promises, unwritten assurances, and “handshake” agreements. Promises of future rewards and opportunities at work are not to be depended upon in significant ways unless (a) they are in writing, (b) they have no conditions, or conditions that are easily understood, and (c) they are “backed up” by an alternative reward or opportunity if later denied you.

This is especially important regarding assurances of (a) important rewards (stock, bonus, equity) and (b) significant changes (such as promotion and partnership). Consider inquiring directly with others who were previously given similar promises to determine whether they felt dealt with honestly and fairly.

Recognizing and avoiding potential fraudulent situations and scenarios at work – even those that could be viewed as fraudulent by others – is an important cautionary measure. There is no question that it does require a degree of heightened state of alertness to situations around you. That said, clients who have been caught up in such matters can attest that it is worth the extra effort. Without question.

P.S.: If you would like to speak with me directly about this or other subjects, I am available for 30-minute, 60-minute, or 120-minute telephone consultations, just [click here.] Evenings and weekends can be accommodated.

SkloverWorkingWisdom™ emphasizes smart negotiating – and navigating – for yourself at work. Negotiation and navigation of work and career issues requires that you think “out of the box,” and build value and avoid risks at every point in your career. We strive to help you understand what is commonly before you – traps and pitfalls, included – and to avoid the likely bumps in the road. Understanding what “fraud” in the workplace means, and how it can manifest itself is one small – but significant – step in that path to job and career success.

Always be proactive. Always be creative. Always be persistent. Always be vigilant. And always do what you can to achieve for yourself, your family, and your career. Take all available steps to increase and secure employment “rewards” and eliminate or reduce employment “risks.” That’s what SkloverWorkingWisdom™ is all about.

*A note about our Actual Case Histories: In order to preserve client confidences, and protect client identities, we alter certain facts, including the name, age, gender, position, date, geographical location, and industry of our clients. The essential facts, the point illustrated and the lesson to be learned, remain actual.

Please Note: This Email Newsletter is not legal advice, but only an effort to provide generalized information about important topics related to employment and the law. Legal advice can only be rendered after formal retention of counsel, and must take into account the facts and circumstances of a particular case. Those in need of legal advice, counsel or representation should retain competent legal counsel licensed to practice law in their locale.

Sklover Working Wisdom™ is a trademarked newsletter publication of Alan L. Sklover, of Sklover & Company, LLC, a law firm dedicated to the counsel and representation of employees in matters of their employment, compensation and severance. Nothing expressed in this material constitutes legal advice. Please note that Mr. Sklover is admitted to practice in the state of New York, only. When assisting clients in other jurisdictions, he retains the assistance of local counsel and/or obtains permission of local Courts to appear. Copying, use and/or reproduction of this material in any form or media without prior written permission is strictly prohibited. All rights reserved. For further information, contact Sklover & Company, LLC, 45 Rockefeller Plaza, Suite 2000, New York, New York 10111 (212) 757-5000.

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