Fraud, like Grease and several other kinds of bad behavior, that we cover in The Business Zoo, goes back to the beginning of time. The word Fraud has century old roots in both England and France and basically means “to deceive or inflict a loss on others while seeking a personal gain.”

Fraud is a dirty daily business to some although it has often been made glamorous or even acceptable in movies like The Sting, with Newman and Redford deceiving the nasty and deserving Robert Shaw.

But the Fraud I focus on occurs in business and often by people who should know better and already are paid excellent money. This is called Management Fraud. It is so popular an activity that we dedicate a whole Section or Chapter about it in my book.

Big, public corporations like to think they can deal with and often prevent or quickly detect Fraud. To do this these firms put in place elaborate procedures and policies which employees must review and sign. And then to enforce all of this the big companies turn to their version of the police, their Internal Audit group.

There are a million stories about Management Fraud and many involve Internal Audit. Sometimes Internal Audit comes out as a hero and sometimes not.  Here is one short story which I hope you find to be both tender and amusing and yet informative.

Internal Audit and the Dead Cat:

Manufacturing plants are like small cities. They have Mayors (Plant Managers), Councils (Heads of H.R., Finance etc.), Citizens (hourly workers), and a Pest Control Department (A Feral Cat). The Cat is not a normal hire but a walk-in and not a pet but a worker which helps with the local pests (rats). Often the Cat becomes a beloved member of the plant community.

But when Cats age they do not have the same medical coverage or retirement plans as the Mayor, the Council or the Citizens.

At one plant, their beloved cat is old and dying so the Mayor asks his Human Resource person to deal with it. Human Resources people are often called in to deal with the dying of workers or their careers, so this was not unusual. The H.R. person does the humane thing and has the Humane society come out, trap and humanely dispose of the Cat, all for a small fixed fee of $25 which comes out of the Plant’s Petty Cash.

This is not the end of the story since, a few months later, this Petty Cash slip happened to get chosen in a random test conducted by the company’s Internal Auditors. They needed to speak with the H.R. person because in all the sorrow and the funeral that followed for the Cat, the Petty Cash slip was not properly filled out. For the week long Internal Audit at the Plant, the head Auditor kept trying to find the Human Resource person to get the paperwork in order. The meeting never occurred and it was listed as an Exception in the Plant’s Internal Audit report.

The H.R. person for this generous act and general good and humane conduct was later promoted to headquarters.

The moral of this story is that Internal Audit can help a business in many ways including Fraud but they need to focus on what is important and not pursue Dead Cats.