Searching for a Dishonest Man



Unlike Diogenes, the philosopher who wandered around ancient Greece searching for an honest man, PricewaterhouseCoopers (PwC) was looking for dishonest men and women when it conducted its fifth Global Economic Crime Survey. Sadly, it found a lot of them. (www.pwc.com/us/en/forensic-services/publications/2009-global-economic-crime-survey.jhtml)

In fact, 30 percent of the 3,037 survey respondents in 54 countries reported economic crimes in their organizations in the prior 12 months. Not coincidentally, 62 percent of respondents said their organizations had experienced a decline in revenues during the same period, and 40 percent said "the risk of economic crime had risen due to the recession."

The study included information about the so-called Fraud Triangle: "three factors that are commonly found when fraud occurs." They are an incentive or pressure to commit fraud (68 percent of respondents attributed the risk of fraud to this factor), an opportunity (18 percent) and the ability to rationalize the crime (14 percent).

What are these incentives and pressures? According to the PwC survey, the main one is the need to meet financial targets in a tough economy (47 percent). Fear of losing a job is the second biggest pressure (37 percent).

Job loss can also lead to opportunities to commit fraud. "Staff reductions resulting in fewer resources deployed on internal controls was identified as the main contributory factor" by 62 percent of the respondents, according to the PwC report.

In terms of rationalizations, employees who commit fraud may be excusing themselves by saying the company is not loyal to its employees and "has it coming." They may point to ongoing layoffs, frozen--or even reduced--salaries, furloughs and cuts in benefits as justifications for their illegal activities.

How can companies protect themselves from this growing crisis? PricewaterhouseCoopers recommends conducting fraud risk assessments on a regular basis. "Since fraud is not a static threat, organizations continually need to assess their fraud risks," the report cautioned.

Unfortunately, most of the study respondents were not up to speed in this area. Twenty-eight percent had not performed a fraud risk assessment in the 12 months prior to the survey, and 31 percent had conducted an assessment only once during that time. Only 6 percent performed monthly assessments.

That seems reckless, but when you factor in the situation of many organizations today--job cuts and overburdened staff--you can see why there are so few assessments: There simply aren't enough employees to check on the rest of the employees.

What happened to the honor system?

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