Fighting Employee Fraud in a Sluggish Economy

With unemployment rates and personal financial trouble at an all-time high, internal auditors must remain vigilant in monitoring their organizations for employee fraud.



“We only invite the best to join our team” is a commonly spoken sentence from human resources departments to potential employees. Internal auditors who review their organization’s hiring practices know that most organizations require employees to pass a drug screen, background — and sometimes licensing — investigations, reference and credit checks, and a skills evaluation. These precautions are in place to help make sure organizations hire qualified employees with good values and morals. Casinos are no exception, and because they typically offer competitive salaries, not to mention incredible earning potential in tips alone, casinos demand the highest caliber employees.

But what happens to the industry’s above average and highly moral employee when the economy slows from a sprint to barely a walk? What happens when business begins to decline and tips decrease by 25 percent or more? What happens when the yearly bonus suddenly disappears? What happens when that stellar team member realizes that the house he or she bought — which was already a little more than the employee could afford — and the recently purchased fancy sports car become a tremendous burden and payments begin falling behind? What happens when the employee’s spouse is laid off from his or her job and the couple is now unable to make ends meet?

That above-average team member has now become a desperate person with above-average skills who may have access to above-average amounts of money. It is a tough thought to process, but is nevertheless something internal auditors must consider when looking at an organization’s controls. Desperation can cause irrational behavior from an otherwise rational employee.


Las Vegas — the largest and most profitable gaming sector in the United States — has experienced a drastic change in its economy since the latter part of 2007. The city’s unemployment rate is hovering around 10 percent — the highest rate recorded since 1982. In some neighborhoods, there are more vacant, foreclosed houses than owner-occupied houses. Drastic discounts can be found on everything from show tickets to timeshares. Rental cars that once cost $40 per day can now be rented for $11 per day. Unfortunately, this phenomenon is not restricted to Las Vegas. The gaming industry continues to struggle with layoffs and a steady decline in profits throughout the country.

To compound this problem, organizations are faced with employees who are being affected by personal financial problems combined with a general panic in the business world over the uncertain economy.  And desperation is causing employees to push sane behavior aside while allowing insane rationalization to run rampant. It is an individual’s fight or flight reflex adapted to the modern world that, in some cases, is wreaking havoc on moral and ethical values.


There is much internal auditors can do to help ensure that fraud disruption is negated and losses are minimized in their organizations during the economic downturn.

Attend fraud training. Auditors must stay current with the most recent fraud investigations and ensure that detection and investigation skills are sharp. The Institute of Internal Auditors, The Association of Certified Fraud Examiners, and The Association of Certified Fraud Specialists offer useful fraud training. Some of these organizations have begun offering virtual seminars in response to limited travel and training budgets.

Talk about it. Make sure that senior management, audit committees, and compliance departments, among others, know that internal auditing is aware of the risk of employee fraud and is taking steps to incorporate detection techniques into audits. Also, talk to as many employees as you can to make them aware that internal auditing’s fraud detection and investigation skills are up to date — never underestimate how powerful a deterrent this can be. Ask department managers if internal auditing can give a brief fraud awareness presentation at their staff meetings — an excellent opportunity to remind employees about the anonymous tip line — and remind management that it is also its role to watch for fraud.

Present detection techniques. Give management a crash course in basic fraud detection. Doing this can expand internal auditing’s detection team throughout the organization.

Incorporate more fraud review procedures into each audit. Additional review procedures usually can be incorporated in a way that requires minimal time and effort but will realize huge benefits. No matter the audit — regulatory, operational, or U.S. Sarbanes-Oxley Act of 2002 key control testing — auditors should always be looking at the environment with fraud in mind.

Create a fraud awareness marketing campaign. By collaborating with the compliance department in a fraud awareness marketing campaign, internal auditing can inform and update employees about the organization’s fraud policy and reporting methods.


Internal auditors who are asked to investigate a fraud perpetrated out of desperation should balance professionalism with compassion. Unlike the typical fraudster who feels that the world “owes me one” or who is just looking to get one up on the system, someone who perpetrates a fraud out of desperation can be emotionally fragile, extremely humiliated, and, beyond all else, very embarrassed that they let themselves stoop to this level. They are typically cooperative and are ready and willing to admit that what they did was wrong. Internal auditors usually are responsible for conducting an investigation and organizing the facts and evidence. Auditors are also responsible for realizing that desperation can cause very good people to do very stupid things and monitor the organization accordingly.

Fraud happens — it always has and probably always will. However, internal auditing’s role of observing and reporting the facts in an unbiased, objective fashion will never change.

Craig Robinson is a gaming industry veteran with 18 years of experience. He is the director of finance for Penn National Gaming’s Argosy Alton property. Previously, Robinson served as managing director at Adams Harris and Jefferson Wells as well as chief auditor for Argosy Gaming and Carnival Resorts. He also spent seven years in external audit with both KPMG and Arthur Andersen. Robinson is the former chairman of the Gaming Audit Group and currently serves on the Board of Governors for the IIA–St. Louis Chapter.


Subscribe_June 2014