FRAUD

Employees that are Paid Less Money are more likely to Commit Fraud.

Employees that are Paid Less Money are more likely to Commit Fraud.

Introduction

Fraud has to be taken seriously. It costs the UK economy alone an estimated £14 billion a year: £230 for every person in the UK. It facilitates other crime, such as terrorism. There is clear evidence that it is becoming a crime of choice for organised crime and terrorist funding. The response from law enforcement world-wide has not been sufficient. We need to bear down on fraud; to make sure that laws, procedures and resources devoted to combating fraud are fit for the modern age so we can tackle sophisticated economic crime vigorously and effectively. But industry and business has much to do to protect itself from the threat of fraud.

What is corporate fraud?

Fraud can be perpetrated on organisation both from outside - the external threat - and from within. Organisations can be set up for the principal purpose of defrauding others and, using the agency of a limited company; fraudsters can perpetrate serious economic offences shielding themselves behind the veil of incorporation. Large-scale corporate fraud can have devastating effects. We have only to look at Enron (losses estimated at $1.5 billion), WorldCom ($3.8 billion), Barings £827 million ($1.4 billion) to see the impact that corporate dishonesty and misconduct can have on a business. Shareholders and bondholders lost everything; thousands of employees and pensioners lost their jobs and their future financial security.

This is only half the picture, however. The real impact is felt much more deeply than in the business itself. We must take into the equation the effect on the credibility of the sector in which the affected business operated; the effect on market confidence and on the reputation of the financial centres in which the business was done. This is an unseen and largely unquantifiable loss but a very real one, nevertheless.

Let us examine for a moment, the extent to which corporate fraud is perpetrated. PricewaterhouseCoopers (PwC) carried out a global survey of 3,600 corporate executives in 34 countries in 2005, which reported that:

1. About 45 per cent of companies had fallen victim to fraud in the past two years.

2. On average they recorded suffering an average of eight serious incidents each.

3. Since, 2003 there has been:

* a 71 per cent increase in the number of companies reporting cases of corruption and bribery;

* a 133 per cent increase in the number reporting money laundering; and

* a 140 per cent increase in the number reporting financial misrepresentation.

4. Fraud that led to a loss of assets cost companies - on average - over US$ 1.7 million: a 50 per cent increase over 2003.

5. About 40 per cent of suffered significant loss of reputation, decreased staff motivation, and damaged business relations.

6. Over one third of these frauds were discovered by accident, making “chance” the most common fraud detection tool.

Fraud is now the crime of choice of organised criminal gangs ...