Fraud Management in Economies
Fraud has of late turned out to be an ethical issue in many governments as well as corporations. According to the Chartered Institute of Management Accountant on their guide on Fraud risk management, describe fraud includes activities such as embezzlement, money laundering, extortion, bribery, conspiracy and corruption.
Emerging modes of fraud include straw ownership. A straw ownership, is a scenario whereby a doctor falsely acts as the owner of a clinic. This is done so that the true owner avoids state licensing and monitoring. These clinics are then used for money laundering as well as other criminal activities. This is because these clinics are used mint money rather than treat patients. In this scenario, insurance companies are also overbilled for services that were never rendered in the first place.
Credit repair fraudsters usually look for individuals who have huge debts. This form of fraud is very common and usually appear as pop-up advertisements online. They usually bear the message that they have the ability to clear or erase debt. These fraudsters usually charge a certain fee which is very lucrative, but in essence, they don’t clear the debt.
Internet Money Laundering is an emerging form of fraud. This form of fraud has cost many a lot of money and even landing some people behind bars. These fraudsters have found easy targets in people seeking employment. In fact, these fraudsters have camped in job listing sites. These people are very daring and in some cases are known to go ahead to send e-mails to individuals who hadn’t applied for the jobs in the first place.
Policy procurement has turned out to be very prevalent as unknowing consumers purchase policies over the internet. This form of fraud, usually involves the recruiting of insureds who are made to apply for policies in which case the paper work is falsified. The aim is usually to secure policies that would have otherwise not written or if they had taken up the policies, they would have ended up paying higher premiums. In certain scenarios, accidents have been staged so as to acquire compensation under fraudulently acquired policies. These are emerging forms of fraud apart from other forms such as corporate fraud.
These and other forms of fraud have been found to be very prevalent in countries and other corporations which is raising eyebrows. This is an ethical issue that needs to be looked into keenly going forward. According to people who have been found guilty of fraud, they say that in most scenarios, they do not set out to commit fraud and often times they only take advantage of opportunities. Once these acts go unnoticed, the move a step ahead and make these acts more often and more deliberate.
According to Dave Coderre in his book the Fraud Toolkit; ‘Fraud Detection: Using Data Analysis Techniques to Detect Fraud’, fraud occurs as a result of combination of opportunity, pressure and rationalization.
An opportunity usually arises when there is weakness in control frameworks or when a person abuses a position of trust. For instance, a corporation may decide to undertake a business re-engineering. Such an important phase of a business may result in a change of control frameworks thus removing some of the essential key checks and balances. This presents itself, as a loophole to commit fraud. This among other opportunities may present themselves and temp one to commit fraud.
Pressure can cause one to commit fraud. These forms of pressure, may be financial in nature as well as the need to make a quick kill and enrich oneself. A case in point, is when a company sets unrealistic targets for its employees. These targets can encourage an employee to commit fraud. This is in an effort to get back at the company for perceived wrongs or in some cases may be as a result of self-esteem issues
Rationalization on the other hand, refers to a belief in the mind of the person committing fraud that the activity they are dealing with is not criminal. They feel that it is the right thing to do for anybody who was in their scenario. At times they feel it is what other people are doing. All this is done to justify their criminal activities. In some cases, they reason out that no one is going to get hurt and some find solace in saying they will pay back what they steal.
It is important to put in place mechanisms to prevent fraud since, this form of unethical behaviour is spreading first and destroying economies and livelihoods of many. Laws need to be strengthened to fight fraud. This is because, the existing laws are not strong enough. Many fraudsters still feel they can get away with it. Economies through legislation, need to come up with penalties that are stricter so that people who may be tempted to commit fraud, may desist from the activity.
Companies and state corporations which are adversely affected by this ethical issue, need to put mechanisms in place to fight this vice. According to Mary Schaeffer in her article on Detecting Fraud in Your Organization, one way of fighting fraud this through conducting surprise audits. The management should liaise with auditors so as to conduct audits from time to time without prior notification. This way, the management can be in a position to unearth a fraudulent deal before it takes root. This method is also known to create fear among employees since they are not sure when the auditors will come checking, thus they will ensure that their books of accounts are always in check.
It also important to carry out background checks on employees. This is especially so for employees who come into contact with the company’s money. Management should order a lifestyle audit of such employees from time to time. This geared at ensuring, that such employees live within their means. In most scenarios, an employee who enjoys a salary within a certain range, can afford certain things which are within his or her ability. If such an employee is able to acquire things that are beyond their reach, such a scenario should be treated as a red flag. This should call for further investigation to find out where the extra income is coming from. If such an employee is unable to explain the source of such extra income, such a scenario should be treated as a case of fraud.
Duties in a company need to be segregated. In most scenarios when a new process or function is introduced, the issue of segregation is usually overlooked. In other cases, a company may employ a perfect segregation process, but destroy it later by giving an employee say a manager access to every function and thus he or she heads such functions. This may be in the company’s best interest to adopt such a move, but in most cases, this may be a wrong one. This because such a manager may form the scam that is involved in such fraudulent practices. This is because he or she believes that they have been entrusted by the company’s management, therefore they would not be suspects of such a case. This means that the top management of any organisation, should not trust anybody. They should only trust themselves in the running of companies. This means they need to actively participate in the running of the company.
The reality on the ground is that all parties have a role to play in combating this unethical behaviour. The management should adopt a method of working closely with its employees to combat this crime. Audits also have a role to play by taking steps that ensures senior management gets to know of these crimes and also the risks that they may be exposed to. Other factors that can completely do away with fraud is coming up with a corporate culture that is fraud resistant, adopting the right mentality towards work. Also auditors in conjunction with senior managers may set up fraud awareness training as well as corporate fraud policy.
REFERENCES
The Fraud Toolkit; ‘Fraud Detection Using Data Analysis Techniques to Detect Fraud’ by Dave Coderre.
Detecting Fraud in Your Organization by Mary Schaeffer, September 4, 2008-www.aicpastore.com/content/media/PRODUCER_CONTENT/Newsleter/Articles_2008/CorpFin/Detecting. Jsp
