WHITE and causing the business to lose large















Oklahoma State University

5, 2017




Collar Crime and the Effects on the Work Environment

            American businesses face the threat of white collar crime
every day. White collar crime occurs when a person abuses their professional
power by using sensitive information to gain access to funds that do not belong
to them. Examples of white collar crimes include embezzlement, tax evasion, bribery,
and money laundering. Financial establishments are vulnerable to white collar
crime due to employees having access to information which is used to steal

            White collar crime not only effects the business itself,
but it takes a toll on everyone associated with the company. When stockholders
invest time and money in a company, they are trusting that institution will uphold
their end of the deal. The scenario least expected is to receive a phone call
being notified that investment funds have been stolen. This occurrence could
ruin an individual’s life, possibly resulting in bankruptcy or even home
foreclosure. According to Saul Rosen,

the victims of white collar crimes believe they are positioning themselves for
a stock that is sure to take off soon, or a startup that looks promising, but
all the while, the white collar criminal is just taking their money and giving
them falsified data instead (Rosen, 2016). 

causes people to feel violated which leads to a less trusting society. A
business that has encountered white collar crime within their organization is
labeled as an unstable and unreliable company. Potential customers will be less
likely to offer their business due to this lack of trust. A revenue drop can be
expected because of the decline of business transactions.

When business profits
decrease, employees begin to search for other employment opportunities in fear
of losing their current job.  White
collar crime negatively impacts customers, staff, and management by disrupting
the daily operations and causing the business to lose large amounts of money.     


            In 1939, Edwin
H. Sutherland created the phrase “white-collar crime” (Williams, 2006). He
emphasized that society identified criminals in the 1930’s as those who steal,
murder, and commit arson. Criminologists had not yet recognized the idea of
successful entrepreneurs committing non-violent types of crimes.  In Reckless’ study (as cited in Williams,
2006) “Gilbert Geiss criticized Sutherland’s work, claiming that the major
difficulty with White Collar Crime as
criminological research was in Sutherland’s inability to differentiate between
the corporations and the actions of the corporations’ executive and management
personnel.” There are many interpretations of who is responsible once white
collar crime occurs. Is the business itself to blame? Or are the individuals
who manage daily operations liable for allowing such an act? First and
foremost, the criminal who committed the unlawful act is responsible for their
own actions.

            With technological advances developing at an aggressive
rate, criminals are finding new methods to scam people out of their money.
Electronic devices enable criminals in obtaining access to sensitive financial
records and information. With the click of a button, a white collar criminal
can steal a person’s life savings. According to Williams (2006), “Embezzlements
are usually difficult to detect and even more difficult to prove.” White collar
criminals have a better chance of getting away with their crimes because of the
entire transaction being electronically performed. White collar crimes commonly
carry on for a substantial length of time when internal controls within the
corporation are weak.                

            It is common for an employer to drug test and complete a
background check before hiring a new employee. These requirements typically
eliminate the possibility of a criminal being hired at most places of
employment. Although, white collar criminals are very rarely caught and this
prevents any kind of criminal record being exposed by employers. To avoid the
event of a white collar crime occurring in an organization, management and
staff must have the ability to identify the warning signs.  

            According to the FBI’s study (1989), About us: our post 9/11 transformation: white-collar crime, The
Federal Bureau of Investigation (FBI) formed a Financial Crimes Section in the
1980’s who specializes in the investigations of white collar crime (Price &
Norris 2009). These units fight financial crimes such as embezzlement, money
laundering, securities fraud, and the list goes on and on. These mentioned
crimes will extensively be defined and explained in the section below.  

of White Collar Crime

            Embezzlement is
defined as “the fraudulent appropriation to his own use or benefit of property
or money intrusted to him by another, by a clerk, agent, trustee, public
officer, or other person acting in a fiduciary character (Williams, 2006 p.
22). Embezzlement occurs when funds are misused for personal gain by the
offender. Individuals that embezzle, typically work for the company they have
stolen from. As previously mentioned, employees have access to financial
accounts and records that should not be altered without authorization by their superiors.
Offenders believe that embezzlement does not personally affect anyone but the
business when they commit the unlawful act. Who operates these companies? Employees
and managers are responsible for ensuring the company is properly functioning
daily and depend on their salaries. A business must bring in revenue to
continue its operations. When revenue is low due to an employee stealing funds,
there is a high possibility the organization will have to discharge staff

to the Association of Certified Fraud Examiners 2008 Report to the Nation on Occupational Fraud and Abuse, “88.7%
of the fraud cases reported were related to asset misappropriation, or employee
embezzlement, with an average loss of $200,000” (Pedneault & Davia 2009).
This total could make or break small companies that depend on lower scale
profits. $200,000 is likely four workers’ salaries for the year. When these
funds are discovered missing, the loss would inevitably ruin four staff
members’ lives. Embezzlement is one of many white-collar crimes that negatively
affect the work environment and all that are dependent on the organization.    

laundering is another example of white-collar crime and occurs across the
globe. According to Kevin McCoy (2017), “financial criminals typically place the money into the financial
system in ways designed to avoid drawing the attention of banks, financial
institutions or law enforcement agencies.” Individuals that money launder are
usually drug traffickers that want to legitimize their illegal funds. The
process entails depositing the illegal funds into a business, so they can hide
the profits within the regular operational revenue. Money laundering is
considered a white-collar crime because business organizations are the only
technique available to assist in hiding funds illegal funds. The IRS (Internal
Revenue Service) is notified of all transactions totaling $10,000. Therefore,
money launderers deposit amounts less than $10,000 at a time to avoid notifying
the IRS of illegal transactions.

The difference between embezzlement and money
laundering is business owners must be aware of the illegal activities since
there are excess funds being deposited into the company’s bank account. The business
owner is approached by the drug trafficker and typically offered a portion of
the profits, if they do not report the illegal activities. Money laundering is
also known as “cleaning money”. For business owners, these types of agreements
are hard to reject. Operating a successful business is challenging and many fail
due to lack of revenue. Money laundering offers are a prayer answered for
owners when this type of set back is encountered.  

McCoy states, “After the funds enter the
financial system, the money is layered, or shifted through a series of
transactions designed to create confusion and complicate the paper trail for
investigators (McCoy, 2017). If money laundering is suspected, investigators
would inevitably turn to the accounting staff for answers regarding the
suspected illegal activity. The accounting staff should be
aware of the illegal activities taking place since bank statements are reviewed
at regularly. If they are not aware, a reliable employee should report all who
are associated to the authorities.

are a few steps involved when the money laundering process has been initiated.
The process takes a certain amount of time to be successful. The next step
taken by the offender is the integration of misappropriated funds. McCoy (2017)

“This final stage is used to help shield
financial criminals by providing a plausible explanation for where the
money came from. Examples of integration include purchasing and reselling real
estate, investment securities, or other financial assets with money from
illicit activity”.

At this stage, the
funds have been “cleaned” by the business and are ready to be moved to
additional location. This is the time when the offender searches for other
opportunities that are of interest. Just as McCoy (2017) stated, real estate,
cars, and investments are purchased since the illegal funds are hidden as valid
profits earned by the offender. Not all money launderers are drug traffickers,
but this method is the most widespread practice among offenders.

            Securities fraud is the most widely publicized
white-collar crime scheme in America. This type of white collar crime is also
known as investment fraud. Securities fraud is accomplished by offenders who
take advantage and misappropriate the funds received from customers. It is
common for criminals to persuade potential investors to participate in
seemingly successful ventures. Falsified information is typically given to the investor,
so they believe the investment will return high volumes of revenue. The
offender accepts the resources received and uses the money in a different
manner than what was agreed upon. The customer generally has no way of knowing
their assets are inappropriately being used until they receive an annual
statement in the mail or they are not receiving the profit they expected within
a certain time frame.

            A famous case of securities fraud is the Ponzi scheme
that occurred in 2008 (Yang, 2014). Yang (2014) stated, “A well-respected financier, Madoff
convinced thousands of investors to hand over their savings, falsely promising
consistent profits in return.” Madoff used money that was given to him by
investors to pay off previous stockholders that he owed money to. Another
phrase for this type of scheme is a pyramid scheme. In a pyramid scheme,
the lower investors provide the funds to be paid to the higher investors. Bernie
Madoff was sentenced in 2008 to 150 years in prison for the Ponzi scheme he
organized (Yang 2014). 

            According to Yang (2016), Ponzi schemes do not last for a
substantial amount of time. Yang states, “The setup eventually falls apart after: (1) The operator
takes the remaining investment money and runs. (2) New investors become harder
to find, meaning the flow of cash dies out. (3) Too many current investors
begin to pull out and request their returns (Yang, 2014).”

            There are
preventative measures that can be taken to avoid encountering white collar
crime (Surrette, 2016). Solid internal controls should be the
primary objective in operating a successful business. Internal controls are the
rules a business abides by to achieve financial goals. For instance, one employee
may receive funds for receipt, another will deposit to the designated account,
and one will record the payment to the general ledger. This process eliminates
the possibility of one employee having all financial control and duties. Pedneault
& Davia (2009) state,

the requirements of the Sarbanes-Oxley Act (SOX), the management of any
publicly traded entity is required to identify and assess the risk of
fraudulent financial reporting within the entity’s operations, as well as to
assess the adequacy of their internal controls addressing the identified risks.”

Financial auditing is a
yearly and necessary requirement in business corporations. If there happen to
be weak internal controls, the auditors usually recommend changes that can be
made to strengthen the organization (Pedneault & Davia, 2009). When audit
findings are revealed, the firm typically gives the business a year to make the
improvements before the next year’s audit is performed.

Work Environment

            White collar
crime can causes friction within the work environment. Co-workers of the
accused will tend to feel duped since they trusted the offender to be morally
sound. Eight hours a day is the typical work day for most white collar
employees. Staff spends more time around their co-workers than around their own
families. Co-workers tend to grow close and relationships are developed due to
spending hours a day together.

tends to rise in a work environment when there is an element of betrayal. It is
possible for an innocent employee to be accused of fraud by guilt of association
with the offender. Inevitably, fingers will be pointed at each other in fear of
losing their job stability. The offender will use every excuse they can think
of to deter the blame away from them. This is when the disloyalty of the
offender negatively affects personnel working in the same department.

fear of the unknown can cause the successfulness of a company to significantly
decline. Current employees may decide to seek out other employment opportunities
due to the organization experiencing turmoil. During an active investigation of
white collar crime, the accused will be placed on leave until the final ruling
by the judge is established. Until then, someone will be required to pick up
the slack and cover the additional duties for the offender. This could possibly
be another reason why staff would want to permanently leave the establishment.

decline in company morale is one consequence of a fraud investigation. Freedman
(n.d.) states, “Any association with a company that has perpetrated or suffered
fraud can be troubling and embarrassing for the people who work there.” Most
employees take pride in their work and feel accomplished by the end results.
This confidence will fade due to being employed by a company that has been branded
by fraud.

concern for businesses, are the increased future audit costs caused by past
fraud detection (Freedman, n.d.). Auditors will carefully examine the financial
statements since there has been a fraud investigation in the past. Freedman (n.d.),
says, “When an auditor is required to perform more procedures, the cost of the
audit will increase.” These unforeseen costs can damage the organizational
revenue and significantly reduce the company’s total budget.