i2 Ethics blog

The key factor employees used to discover Corporate Fraud

Las Provincias Newspaper :: 22-10-2012



More and more companies have formulas, internal or external, to avoid diversion of funds and other deceptions.
stopWith the crisis onset, financial scandals erupted. They affected the banking sector, controlling organisms and business elites of some of the world's leading companies. Bernard Madoff topped the list, with a financial fraud of 50,000 million dollars, the largest in history, but followed by Jerome Kerviel from Société Générale; Alexis Stenfors from Merrill Lynch; Evon Dooley, of MF Global. They are names that have already passed into history of bad business arts.
However, far from abating the storm, we have breakfast each day with a new scandal. Social protests that ignite Madrid’s, Athens’ and New York’s streets point the finger at the 'immorality' of the financial class and business schools inject the transparency antidote in its programs for executives. Talking about business ethics is fashionable, but apparently is not practiced with the desirable assiduity.

«Without doubt, the current economic crisis is causing increasing fraud cases», says Gertrudis Alarcon, general director of the anti-fraud consulting GAT INTELLIGENCE.

Diverting company funds with improper charges for expenses assumptions, counterfeit bills, personal purchases with business cards, fictitious expenses on business trips, nonexistent purchases, theft of company property or collection of fees to suppliers are the most common frauds.
José Manuel Muries, president of the Institute of Internal Auditors does not believe, however, that the crisis has favored unethical behavior. «I’d rather believe that, conversely, we are immersed in this crisis because in many cases there hasn’t been any action, with the entire ethical or professional rigor that you would expect».
A report by the ACFE- a professionals’ worldwide organization specialized in the fight against fraud reveals some disturbing figures; businesses lose each year 5% of their income due to internal fraud, nearly half of the Spanish companies acknowledge have been affected in the last year for incidents involving economic crimes, and between 6 and 8% of employees would be willing to commit fraud in their company if they found the opportunity.
Gertrudis Alarcon warns that all these practices are impacting negatively on the economy. «The crisis itself is making employers, and even consumers not to claim the bill for rendered services or purchased products, to lower their expectations of what is purchased with less quality assets and produced exchange of services for each other without consideration».

Vigilant Workers
According to the ACFE report, most corporate frauds are discovered by employees themselves. «People who live daily with the employee who is committing fraud are in the best position to notice changes in habits, unusual attitudes, unusual requests to perform certain tasks or excessive interest in dealing personally with some matter without leaving others to intervene», Gertrudis Alarcon says.
Sometimes, committing fraud within a company requires the participation of other employees, but the expert warns that this participation, in most cases, is involuntary; often they do not know that a fraud is being committed. Of course, over time they can begin to suspect that something is not right and the ideal moment to tell what happens presents itself. «Connivance between several employees to commit fraud in a company is not common, but it also occurs» Alarcon says. In general, workers often use letters by postal mail, 'e-mails', personal interviews or 'on-line' channels to report to senior management that something happens.
The solution, the director of GAT INTELLIGENCE says, has to do with «dissuasive measures, intensifying the struggle against fraud, raising awareness campaigns and a less burden tax system which do not compensates committing any fraud», Gertrudis Alarcon says.

Indeed, the company has launched the business ethics service line in Spain, a complaint and identification of inappropriate behavior mechanism. It is a safe confidential complaints mechanism, integrated into an 'on-line' platform. The service consists of a website where employees and related parties may denounce irregularities in writing. This page has a certified secure server and the connection is made with a protocol that allows data encryption between the browser and the server. The company states that this complaint mechanism reduces by 50% the fraud average loss.
José Manuel Muries, president of the Institute of Internal Auditors, believes that the figure of the internal auditor has become «essential» during these times. «We are a mix between journalists and doctors: we ask questions to understand how the organization works – we analyze facts - and where appropriate, we recommend a treatment (recommendations)». This is a figure whose role is to oversee that the organization has properly managed risks and, therefore, may be essential in the company’s ethical strategy.
Muries calls internal auditors to defend the profession’s values - ethics, objectivity and professional rigor – and recalls that «above all, they must be independent». Indeed, the independent vice president of Bolsas y Mercados Españoles (Spain’s Stock Markets and Sales Market), Margarita Prat, was very clear as regards this issue in a recently organized conference by the Institute of Independent Auditors. «The one who does not feel supported by their company should not continue in their position».

Reporting channels in Spain: Do they work or not?


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