Holiday Season Poses Unique Risks for Businesses

ditor’s Note: During the holidays, many people celebrate, give gifts, make charitable donations and engage in other traditional activities associated with the season. These observances often overlap into the corporate and business environment, and can instill a shared feeling of enjoyment or camaraderie among colleagues. However, they may also create a climate in which fraud can occur – along with some other negative consequences.

Editor’s Note: During the holidays, many people celebrate, give gifts, make charitable donations and engage in other traditional activities associated with the season. These observances often overlap into the corporate and business environment, and can instill a shared feeling of enjoyment or camaraderie among colleagues. However, they may also create a climate in which fraud can occur – along with some other negative consequences.

We consulted ACFE faculty member Eric Feldman, CFE, CIG, Managing Director for Corporate Ethics and Compliance Programs for Affiliated Monitors, Inc., on his top concerns for businesses during the holiday season.

By Eric Feldman, CFE, CIG

November 2014

There are a number of pressures that businesses and their employees face around the holidays that can increase the risk of employee misconduct. Smart businesses will anticipate these pressures and communicate with their employees early, sharing reminders of what is expected of them with regard to ethical behavior:

Giving and receiving gifts to/from managers and subordinates: ‘Tis the season for gift giving, but a company's rules on the giving of gifts aren't suspended around the holidays. Remind employees of what types, amounts and venues for the giving of gifts are appropriate, particularly between supervisors and their managers, and managers to employees. Avoid perceptions of impropriety, hurt feelings and morale problems by ensuring that everyone understands the rules.

Pressuring employees to give to charity or religious causes: The holiday season is often a time for charitable giving, but companies should have rules about pressuring employees to give. Personal, charitable solicitation in the workplace can result in overt and subtle pressure tied to bonuses, benefits or even continued employment. Charitable giving is a healthy part of the joy of the season, but if it's allowed in the workplace, it needs to be properly and transparently managed.

Celebrating and gift-giving with contractors, vendors and suppliers: Close relationships between company employees and third parties are on a slippery slope any time of the year, but the holiday season poses additional risks and challenges. Companies need to provide clear guidance to their employees on the extent to which they can/should participate in often lavish contractor parties, gift exchanges, or other celebratory events. Even an innocent passing of a bottle of holiday cheer can create expectations of payback in the contracting process, leading to the appearance (and perhaps the reality) of impropriety in the contract and procurement process.

Letting your internal controls go on "vacation": Holiday time is vacation time, and good companies want to give their employees time off to rest and enjoy it with family and friends. Nevertheless, the company needs to ensure that its basic controls over invoices, payments, accounts payable and receivable, and contract execution aren't compromised by being short-staffed. Tactical decisions about granting vacation time off to key personnel; maintaining critical separation of duties; and providing incentives for critical employees to "hold down the fort" during certain holiday periods can help ensure that the "Grinch doesn't steal Christmas."

Not all your employees are sharing in the holiday spirit:  While holiday time is magical for some, remember that many of your employees find it downright stressful, and even depressing. This time of year exacerbates feelings of financial pressure, loneliness and even depression, and is the time of the year with the highest rates of suicide. Companies can help by offering resources and support to employees, reminding them of employee assistance programs and services that are available to help. Managers and supervisors should be particularly watchful for "red flags" of unusual employee behavior, and watch for signs of misconduct that could indicate possible employee fraud or other potential problems.

Seasonal Hiring: Important Considerations

Many businesses need to increase staffing for the holidays. Here are some critical tips for every organization that hires seasonal employees during this time of year:

Follow your standard hiring protocol: While many businesses have formal hiring procedures, the pressure to remain fully staffed around the holidays, particularly in retail, often drives companies to short-cut the process. It is critically important for businesses to follow all of the usual procedures, including fair competition for positions; ensuring equal opportunity and seeking diversity; and providing a complete orientation to new employees that lays out expectations about ethical employee conduct.

Conduct proper background screening: While most people are basically ethical, a company's first defense against hiring unscrupulous employees who are intent upon helping themselves to their own holiday bonus is thorough employee screening. Such screening should include criminal checks, complete reference checks and even brief ethics tests. Entry-level and temporary holiday positions are no exception. Businesses that short-cut this process around the holidays not only run the risk of hiring serial fraudsters, but can potentially undermine the morale of the rest of the staff and the ethical culture of their organization.

Maintain internal controls: Holiday time may be “party time,” but it’s not the time to lighten up on internal controls. Even the most honest of employees can be tempted to engage in unethical behavior to meet the pressures of holiday spending, particularly if they see that there are greater opportunities to do so through temporarily relaxed controls. Due diligence dictates that businesses keep their guard up throughout the high-risk holiday season.

Eric Feldman, CFE, CIG, retired from the Central Intelligence Agency (CIA) in 2011 with more than 32 years of experience in inspector general oversight and federal auditing, in both the executive and legislative branches of government. He is the Managing Director for Corporate Ethics and Compliance Programs for Affiliated Monitors, Inc., and is an ACFE faculty member.