I just finished reading an article in the Globe & Mail about corporate fraud. I agree that fraud is a huge problem, and the numbers in this article probably reflects the results of the survey. But, I think the problem is much bigger than the numbers in this article present.
Common sense would suggest that published numbers associated to crime levels, for any type of crime, are going to be lower than in reality. There are many reasons for this: under reported crimes, undetected crimes, errors in police reporting and tracking systems, crime classification differences, to name a few.
Fraud is a growth industry. Hard times contribute to and motivate people to make bad decisions. High unemployment, bankruptcies, cut backs, fewer opportunities for people to work overtime. Fraud is not a new phenomenon. It didn’t just start when the economy went into the dumper.
People always look for opportunities. Nothing motivates people more than a good deal or a “once in a life time” opportunity. We buy bulk at Costco, we scoop up deals at Winners, and we grab 2 fer 1’s at Safeway. Why should people with an inclination to steal be any different?
We make fraud easy and it cannot be eradicated. It’s that “opportunity” I was talking about. Low risk opportunities with high potential for gain. Companies try to save a buck by making internal adjustments and in doing so; they expose themselves to more and different opportunities for fraud. Here’s an example: a corporate IT person makes a recommendation to management to install software that would allow the company to detect and monitor financial transactions, the movement of inventory and internal communications on their network. Due to the cost of the software, management decides to pass on the recommendation. This was a cost based decision, not a risk mitigation based decision. Over the longer term, the company’s vulnerability is much higher.
What’s the answer? It’s not tighter regulations, more laws, hard-ass regulators. They take that approach in the USA and their problem is worse than ours. In Canada, we are not there yet. One suggestion might be to make the companies and those who own and manage them more accountable for protecting their finances through the implementation of practical prevention strategies.
Many individuals and companies are aware of CPTED (Crime Prevention Though Environmental Design) and have utilized this approach to protect the exterior of their buildings. It’s a multi-disciplinary approach to reducing the risk of a physical attack on a business premise or home. A similar mind set towards internal defense should be taken with corporate processes and systems. Implementing detection and audit measures that will provide management with timely information about unauthorized, inappropriate and illegal activity that could jeopardize the company is never a bad decision.
The police aren’t resourced to deal with every fraud complaint. Fraud can be reduced, even detected through the implementation of sound HR policies, finance protocols, accounting and stock audits, IT security protocols, detection software and surveillance equipment.
If you want to read a good summary of a very detailed fraud survey, go to www.acfe.com and look at the 2008 Report to the Nation.
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