How to stop fraud

MPs' expenses, Bernie Madoff and Alan Stanford - fraud has been in the headlines this summer, but the high profile should not blind us to the reality of fraud at every corporate level.


It doesn't take a high-profile, multibillion-dollar scandal to rock an enterprise. These days, when employers are cutting salaries, staff and bonuses--and staff is uncertain about the next round of layoffs--more employees are committing fraud, according to a study by the Association of Certified Fraud Examiners.

More than half of fraud examiners surveyed said that the level of fraud has slightly or significantly increased in the previous 12 months compared to the level of fraud they investigated or observed in years prior.

US organisations, for example, lost 7 percent of their annual revenues to fraud between 2006 and 2008 for an estimated total cost of $994 billion in losses, according to the ACFE. That's a slight uptick from the 5 percent loss reported for the two-year period ending in 2006.

What's more, about half cited increased financial pressure as the biggest factor contributing to the increase in fraud, compared to increased opportunity (27 percent) and increased rationalisation (24 percent).

Fraud can include minor things like expensing personal items or major, fraudulent billing schemes carried out over months or years. "They're using the corporate credit cards for expenses that are really tying back to people in the accounting department to fill their own needs," says Adam Safir, COO of security consulting firm Safir Rosetti in New York. "We've had clients where individuals have racked up $500,000 worth of transfer payments to various parties that were done piecemeal through small [charges]" over several months.

Making matters worse, layoffs are affecting organisations' internal control systems, according to the ACFE study. Nearly 60 percent of companies say they had experienced layoffs during the past year. Among those who had experienced layoffs, more than a third said their company had eliminated some controls for preventing fraud.

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