Crime Around the Collar

“They lie, they cheat, they steal and they’ve been getting away with it for too long,” screamed recent Fortune magazine headline dedicated to covering the exploits of white-collar criminals in the US. Then out pops KPMG Forensic’s Fraud Survey 2002 detailing the exploits of similar maleficent managers in New Zealand and Australia.
The survey showed, predictably, that fraud is, and continues to be, “a major problem for business” in this part of the world as it is elsewhere.
Apart from the statistics showing growth in the frequency of infringement and level of funds filched, both the KPMG report and the Fortune article pointed up significant management issues.
For instance, in at least third of the reported cases of major fraud surveyed by KPMG early warning signs were “either ignored or not acted upon quickly enough”; senior management was seen as “having primary responsibility for fraud prevention” and more than 60 percent of the respondents in the survey had “neither planned, nor implemented”, appropriate fraud control strategies.
KPMG Forensic also suggested that:- the further flattening of organisational structures with consequent reduction in middle level management, who traditionally have enforced internal control; and the tendency for victim organisations to treat fraudsters leniently, thereby allowing them to move from organisation to organisation, commiting further fraud at will (often with exactly the same modus operandi) – were both having significant impact on the level of corporate fraud.
It is clear from the survey that many organisations in New Zealand and Australia, including many that suffered serious fraud loss, have not yet implemented “even the most fundamental fraud prevention measures – measures that are often simple and inexpensive yet effective”.
As KPMG’s Auckland managing partner Jan Dawson pointed out: “The survey shows that fraud is not just alive and well in New Zealand and Australia – it is thriving.”
Dishonest managers accounted for the highest proportionate losses outside the financial services sector – 40 percent of losses by value representing an average loss of $96,732 per fraud.
Fortune magazine bemoaned the fact that while white-collar criminals “displayed the full range of executive thievery, they had one thing in common: Hardly anyone ever went to prison”. KPMG’s survey found that 40 percent of respondents did not even have formal system for reporting alleged or suspected fraud. And of the incidents reported to the police, charges were laid in only 40 percent of cases. The two main reasons for not reporting incidents to the police were:
* perceived lack of evidence to justify the report; and
* concern about adverse publicity to the organisation.
“The problem,” said Fortune, “will not go away until white-collar thieves face consequence they’re actually scared of: time in jail.”
A first good step, however, might be for boards of directors and senior management to take the threat of fraud and white-collar crime more seriously and institute effective management procedures to prevent it from happening, or at least make it much more difficult to succeed.

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