March 25, 2010

When Your Employees and Customers Unite to Defraud You

Our main Cisco router recently died. We have had it for many years and it was due for an upgrade. We contacted a few of our current suppliers to get quotations. One, we’ll call ABC, sent their regular sales representative who spent some time discussing our needs. Within a couple days, we received a quotation from the sales representative. Interestingly, it was in the sales rep’s own personal name! He has a small business on the side, doing exactly the same thing that his employer ABC does.

Surely, ABC is unaware that we received this quotation from his employee. The employee probably told his superiors that we no longer wanted the router or that we had purchased it elsewhere. He was quite confident that we would buy the router from him and never tell his management, an indication that he has done this several times before.

Another local IT company developed some industry specific software and customized it for their primary client. They trained their main developers extensively, even sending one to North America for classes. The client then unexpectedly decided to cancel the contract. The IT company felt protected by the fact the client would eventually be forced to honor the contract or cease operations since this was a mission critical application and they could not operate without it. Unbeknownst to them, the client had already purchased the source code from the IT company’s developer, who, with a still valid visa, had fled to North America. Given the state of the judicial system in this country, there is not much recourse for this IT company.

We complained once to our former internet provider about slow bandwidth even when there were few of us connected at once. They kept checking their system and said that we were using all of our allocated bandwidth. After an investigation, it was discovered that one of their employees had given other customers access to our bandwidth paying the employee directly for the extra bandwidth.

We have also been on the other side of employee/customer fraud. A few years ago we did some training for a very large customer. We did not get the purchase order up front since both their IT director and their training manager came to our office to confirm the training, promising to bring the purchase order during the training. Well, even after the training was over, we still had not received the purchase order. For the next year and a half we waited for the purchase order. The salesperson responsible for the deal on our side was very active in keeping in contact with the client and updating us with the internal problems the client was having, asking us to be patient. The client’s IT director also came to see us several times asking us to hang in there and that there were larger projects down the road for us if we remained patient. They were a very large customer and the potential was huge so we waited.

Eventually, we decided to send a fax to the customer’s CEO to state that we were walking away from the $26,000 in revenue and wanted them to acknowledge our “donation.” We first called his office to get his fax number. Hearing the name of our company, the secretary said that she had seen a payment document come through with our name on it. She transferred us to accounting. The accountant confirmed that she had just issued the payment. She confirmed our invoice number, the invoice description and other details, all of which were correct, then added. “We just ordered a wire transfer to your account at 123 Bank.” Well, we didn’t have an account at that bank. She insisted that the account information was on the invoice and faxed us a copy of the invoice.

The invoice had been copied exactly from the one we had submitted with one exception: the payment details were the account number of a company our salesperson had set up with the customer’s IT director! Even after the fraud was discovered, we still never got paid in full. The purchase order had been issued in the name of the other company and we had to negotiate a lower payment. As part of the agreement, we had to pay the salesperson her commission!

One of my friends also owns an IT company in this country. They have devices that secure revenues for a government agency. The devices are all connected to a server which reports on the revenues generated by the devices. One of his employees, in complicity with agency employees, took one of the devices offline. The device continued to collect revenue but none of it was reported. When my friend uncovered the subterfuge, he immediately notified the client and fired his employee. The agency had my friend briefly arrested and his employee's accomplices within the agency kept their positions! Obviously, the agency management was in on the fraud. Had my friend kept quiet, everyone would have been happy.

I am not sure what the solution is to this disease that permeates business relationships in this country. The judicial route is risky at best and no one wants to take customers to court, even when they acted improperly. You can of course fire your employee or file criminal charges for theft but you are again left to the mercy of the judicial system.

Some employees use the excuse that they are not well treated by their employers but in all the examples I listed above this was not the case. Our salesperson earned $1,000 a month before commission and had $300 in monthly telephone credit which is quite decent, especially since she was not full time. In the other cases, the employees were some of the highest paid and best treated in their respective companies, some even having company cars and expense accounts. This really just boils down to the general business climate in the country. Anything goes. There is no right or wrong, just a quick way to make money.

I feel very blessed with the staff I have right now and I am confident that they don’t engage in this type of behavior. At least… I think.


  1. After implementing an e-procurement software within an entity, pushing paper POs through the system is replaced by a more efficient electronic approval and tracking process. No longer is the question asked;

    "Have you seen my Purchase Order for XX” but…

    “I know you have my order, can you please approve it so I can order the XX?”

    The process and ability to track purchase requisitions and orders becomes as easy as finding an e-mail. No longer are your end users wasting precious time and productivity trying to tack down their orders. It becomes so streamlined and structured, the organization can focus on contract compliance and budget management to save money more effectively.

    In addition, contract compliance is enforced and maverick spend is controlled

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