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Tom Craig asks: are we doing enough to prevent fraud? He fears not.
Do you think you have a thorough understanding of how your company policy and controls are working’ Don’t even contemplate answering, but think again for you are in for a shock. In 1999 speakers at the Association of Certified Fraud Examiners (ACFE) conference in Las Vegas raised various points on how policies and controls could help to prevent fraud. One of the speakers Sue Hampton gave the following conclusion: ‘To assess the integrity of an organisation, one needs to look at ‘management climate’. If management is committed to, and conducts itself in an ethical manner, so will the rest of the employees. This commitment to integrity can be demonstrated in many ways both in actions and attitudes. The responsibility is on management to take the element of opportunity out of crime.’ All well and good, but to promote the preventive culture we have an uphill struggle as managers cause four times more losses by fraud than other employees. Should we trust the managers alone to deal with fraud prevention issues’
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Fraud is still the fastest growing crime in the world, resulting in substantial losses across all economic activity effecting both the individual, national governments and everybody in between. The European Commission for example reported fraud-related losses in 1998 of $6 billion. The UK central government completed a survey in 1997, across 60 departments, 31 of which recorded almost 2,000 internal cases of fraudulent activity, resulting in losses of $11m. These cases included theft of assets, falsification of documents, theft of cash, encashment of cheques and dishonestly making overtime and travel expenses claims. The most notable reasons why the frauds happened were a failure to observe controls in most instances, or a complete lack of control in others. One of the major problems in fighting fraud is resistance from the management within an organisation. Viewed as a ‘victimless’ crime, many managers regard fraud as an inescapable way of life where the effort required to thwart it far outweighs the benefits of doing so. This is partly due to a lack of understanding of the full ramifications of fraudulent behaviour. For example, it can be shown that a $10,000 loss to a company that turns over $100,000 actually equates to a loss of some $72,000 when considering costs of generating replacement revenue and loss of interest earned as well as interest incurred. You must also remember fraud is a wider issue than just monetary loss. In 1997, The Institute of Chartered Accountants of England & Wales (ICAEW) inaugurated a Fraud Advisory Panel. A year’s research concluded
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– no-one takes particular responsibility for detecting/preventing fraudulent behaviour;
– detection of fraud is seen as a burden;
– little training in fraud prevention exists even amongst accountants.
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The ICAEW recommend training programmes amongst the main preventers of fraud, that is, the managers of purchasing and supply, personnel and development and risk assessors. As yet there is little evidence that even this illustrious body has made any inroads into undermining the prevailing attitude that ‘fraud is something that happens to somebody else, not me’. These are the conditions that fraudsters thrive on. What is required is prevention so that losses are not incurred in the first place, thus allowing managers to get on with running their companies, so that precious resources can be directed towards growth.
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Research by consultants Amarlis was based around a questionnaire designed to establish the awareness of potential and/or real problems within a company. This study was conducted at all levels, directors, managers and employees. Its raison d’etre is to assist in creating a better working environment rather than to conduct a witch-hunt. Once completed (anonymously), the questionnaires are analysed and reported on with recommendations for training in controls and policies where they exist and the implementation of controls where they do not. The following are key findings from 250 returned questionnaires. The industries examined include accountancy, banking, civil service, manufacturing and law enforcement.
– only a quarter of respondents had been informed of the risk of fraud within their company;
– fewer than half identified ‘expenses’ as an area open to fraudulent activity.
– while more than 90 per cent of respondents agreed that misrepresentation of information on a CV constituted fraud, less than half said the same about invoice overpayments or non-payment of valid debt;
– more than two thirds had never had any training in the prevention of fraud although almost half had been personally a victim. Indeed more than three-quarters were not even aware if their companies had any policies concerning fraud.
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However, the most telling evidence lies in the last two questions. Three quarters of respondents gave a definite ‘yes’ when asked if they thought their company should participate if a service were on offer to both further educate and assist in reducing the risk of fraud.
