Prevent Fraud at Your Co-op

(L-R) NRECA’s Pat Mangan moderates a discussion on fraud with Steve Hamlin and Kent Farmer. (Photo By: Michael W. Kahn)

(L-R) NRECA’s Pat Mangan moderates a discussion on fraud with Steve Hamlin and Kent Farmer. (Photo By: Michael W. Kahn)

PITTSBURGH—"It's a very uncomfortable topic for everybody. You hate to think that your employees would ever steal or commit fraud at the co-op."

Steve Hamlin, CEO of Piedmont EMC in Hillsborough, North Carolina, was blunt about the topic. But when you're running a business with millions in annual revenues, you have to be realistic.

That's why Hamlin joined Kent Farmer, CEO of Fredericksburg, Virginia-based Rappahannock Electric Cooperative, on a panel at the Regions 1&4 meeting titled, "The Irony of Oversight: A Cautionary Note for Boards."

"Our co-ops are very tight-knit communities, and we never would think they'd steal, but ironically it often turns out to be the last person that you would ever think to have done it," said Hamlin, who encountered fraud in his earlier career as a certified public accountant.

"Oftentimes somebody will start to steal and they'll start out with small things, maybe with the intention of paying that back," Hamlin said, citing a number of reasons from drugs to financial problems. "And they continue to do it. And the amounts get larger and larger—or they become more and more greedy."

Farmer said fraud prevention doesn't have to mean reinventing the wheel.

"There are things that most of us have in place such as ethics policies, whistleblower policies. We don't necessarily put them all together and call it our 'fraud prevention package.'" Farmer urged board members to "make sure those policies are good policies," and called on fellow co-op managers to keep those policies in front of staff.

"It makes the employees aware that management is concerned with it. Not from a standpoint that we think it's happening, but from a prevention perspective," said Farmer.

But, Farmer warned, "You can have the best policies there are and fraud may still occur. That's because of collusion—two people working together. So as you develop your policies, you have to remember that these are preventive measures, but they're not going to stop it all. And you have to be prepared for what you're going to do when it occurs."

Farmer believes co-op employees "are your eyes and ears," so he delivers this message to staff: "If you know that somebody's doing something that they shouldn't do, it's your responsibility as an employee to bring that forward, because at some point it's going to hurt the organization."

Hamlin said employees are usually willing to report their suspicions, "assuming they feel comfortable and safe to do so." To that end, Hamlin added a blunt message everyone needs to hear: "If you get caught, you're going to jail. We don't put up with that."

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