Tackling the internal threat

2 mins read

In view of recent employee sabotage at US electric car maker Tesla, David Kearns, a specialist in employee dishonesty, looks at why manufacturers need to take steps to protect themselves from the internal threat

Last month, Tesla, the US electric car manufacturer, hit the headlines because a disgruntled employee who had been overlooked for promotion was caught exporting data and making code changes to the operating system. Shortly after, Tesla CEO Elon Musk sent an email to all staff, stating that the person had conducted “quite extensive and damaging sabotage”.

Musk added: “Most of the time when there is theft of goods, leaking of confidential information, dereliction of duty or outright sabotage, the reason is something simple like wanting to get back at someone within the company or at the company as a whole. Occasionally, it’s much more serious.”

Tesla’s experience is far from unique as theft and fraud are prevalent within manufacturing. The average loss for a UK company with fewer than 100 employees from a single incident of fraud is £150,000 whilst companies with more than 100 employees are hit by average losses of £78,000 from a single fraud event, according to the ACFE Report to the Nations Global Fraud Study 2018

With these figures in mind, manufacturers should be asking: “What are the reasons for employee sabotage/dishonesty?”

The snowball effect

A survey by Investors in People reveals that one-quarter of employees feel unhappy at work. Some employees are dissatisfied to the extent that they become disgruntled and this is when employee fraud, theft and sabotage is likely to occur.

Donald Cressey, an American professor and creator of the Fraud Triangle, has his own theories. He uses the triangle, which consists of three elements as a model to explain employee theft and fraud. The first arm represents a non-sharable financial need whilst the second is opportunity. The third is rationalisation, which leads to fraudulent behaviour when they all come together.

According to Cressey, a potential fraudster will act when they have the opportunity, are able to rationalise their actions, for instance, are dissatisfied, underpaid or overlooked for promotion, and are motivated by financial gain.

Taking action
What steps can manufacturers take to protect themselves from employee dishonesty?

  • Improve internal controls
  • Conduct background checks on job applicants
  • Arrange for fraud audits
  • Prosecute offenders
  • Educate staff members about potential sources of fraud and consequences, such as the loss of jobs, pay increases and profits.
  • Set up an anonymous hotline

*Source: Association of Certified Fraud Examiners (ACFE)

Following sabotage at the US car maker, Tesla quickly launched an investigation into whether the ex-employee was acting alone, with others at Tesla or an outside organisation. By being proactive and taking the decision to investigate quickly, the company will lessen the opportunity as well as reduce the financial loss and reputational damage to the company.