By Patrick Connelly  |  Buffalo Business First  |  Jun 13, 2020, 6:05am EDT

The next great pandemic worry: Fraud by employees

A thought crossed the mind of attorney John Schmidt Jr. recently as he took a break from his caseload and wandered through the empty streets of downtown Buffalo.

“We’re in a completely different landscape,” he said. “There are so many people telecommuting and working from home unsupervised.”

Schmidt, a partner at Phillips Lytle LLP, has handled workplace fraud cases for 25 years. Relaxed supervision, or a lack thereof, seems ripe for workers to veer off track, particularly in less-than-certain economic times and amid furloughs where tasks typically performed by others now fall on their shoulders.

He fears the next great headache to confront businesses as a result of Covid-19 could be right under their noses.

John G. Schmidt Jr.

John Schmidt said a red flag for businesses of potential fraud could be changes in an employee’s life at home, such as a divorce or other financial stress. (JOED VIERA)

“The opportunity for fraud, I think, rises exponentially, even among the most trustworthy employees,” he said. “In a lot of the cases we handle, the victim – the business owner – is shocked that the crook was who it ended up being.

“A lot of times it will end up being the irreplaceable employee.”

Schmidt said most fraud cases are orchestrated by means of check or expense account manipulation and cash mishandling. Others involve employees diverting business opportunities for their own or a known party’s benefit, or the theft of company information, trade secrets or client data.

In the months to come, he expects to see an uptick in calls from firm clients with one form of problem or another.

“A lot of the internal processes at businesses were turned upside down by the shutdown – and to the extent that some were able to reopen or reopen with limitations, a lot of their internal controls perhaps were pushed aside out of necessity, expediency or reduced staffing. Everybody is under a lot more stress and that can add fuel to the fire.”

To combat potential problems now, he suggested businesses connect with their accountants or legal counsel to inspect their internal records, vendor lists, bank statements or other information to see if anything appears off.

“Get a fresh set of eyes on them to make sure there hasn’t been any recent or long-term manipulation of the check register, expense entries or credit card expenses,” Schmidt said.

He also suggested businesses take a second look at new companies from which an employee may have made a Covid-19 related purchase of face masks or other goods to be sure they are genuine.