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Holman Jenkins, writing in The Wall Street Journal, also notes that a variety of corporate executives faced civil and criminal sanctions well before Enron. Citing a number of these cases, he goes on to note one of the reasons for the increase:
An astonishing number of business execs face jail or indictment for bookkeeping fraud. Federal prosecutors,... once left such behavior to the civil courts. Change was coming even before SEC Chairman Arthur Levitt began rallying opinion in the late Clinton years with speeches against “accounting hocus-pocus.”... 33
L. J. Brooks also expressed concerns about the general corporate environment and the demands and pressures faced by U.S. corporations. He noted they will continue to be called on to address their ethical dimensions because of a number of factors:34
1. A growing crisis of confidence about corporate activity
2. Increasing quality-of-life issues
THE STATE OF OCCUPATIONAL FRAUD
3. Growing expectations that corporations and individuals will be dealt with harshly for ethical and legal violations
4. The growing power of some special interest and watchdog groups
5. The general level of publicity generated by the previous factors
6. An enhanced recognition on the part of business executives and the greater business community of the legitimacy of longer-term versus immediate goals
Some of Brooks’ concerns seem to have been borne out. Others, such as a long-term versus immediate orientation are not so clear, but the interesting thing is that Brooks made these observations in 1989, almost 15 years ago.
Kenneth Labich likewise speculated in 1992 on factors he believed would motivate businesses to deal more vigorously with issues of ethical compliance, among them:35
1. Increased media expertise in rooting out corporate misdeeds
2. Financial consequences of corporate ethical failures
3. Harsh federal sentencing guidelines for certain misdeeds
These figures, troubling as they are, may or may not represent occupational fraud. Normally, we think of such fraud as being the province of one or more employees abusing their organizational positions for personal profit. While we shall discuss such issues more fully in reference to issues of definition in the occupational fraud field, I would suggest incidents such as this are occupational fraud. The only difference appears to be that someone senior to the chief financial officers is pressuring them to commit the fraud on their behalf. We can, should we so chose, term some incidents of this type business reversal fraud. That is a term Cressey, whose pioneering work we shall examine in Chapter 4, used to describe frauds undertaken for the primary purpose of saving a failing business, but they are frauds nonetheless.
While this book is about the state of occupational fraud in the United States, some statistics from Canada are perhaps pertinent. Their utility derives from several intriguing issues they raise—issues that may go to the heart of explaining some of the peculiar characteristics of the fraud phenomenon with which we are dealing. In 2000, Ernst & Young LLP—Canada commissioned a polling organization to conduct a random, confidential, statistically sound survey of Canadians. The poll randomly contacted 822 Canadians and produced results that are considered accurate to within +/- 3.4 percentage points, 19 times out of 20.
Those contacted were asked if they knew one of their co-workers was taking goods or money that did not belong to them, if they would report it if they were
the only person with such knowledge. Eighty-four percent of the respondents said they were very likely or somewhat likely to do so (55% very likely, 29% somewhat likely). Respondents were then asked how big a problem they thought the following types of fraud were. Those responding cited the following areas as significant problems in the 7-10 range on a 1-10 scale:
Inflating expense accounts 68%
Taking items from the office 66%
Altering books to make profits or
costs look better 57%
Pocketing money from cash sales 56%
Taking kickbacks from suppliers 51%
Creating phony supplier invoices 44%
Respondents were then asked if they were personally aware of any of these types of fraud in the past year involving either themselves or people they knew. Twenty-five percent responded positively and 74 percent responded in the negative. The most common offenses were taking items from the office (47%) and inflating expense accounts (21%). All other response categories were 13 percent or less.
The respondents were then asked, with regard to the previous instances, if they personally reported them. Thirty-four percent said they did and 66 percent said they did not. This is truly an interesting statistic and one worthy of further study. When asked in the abstract as to whether they would report fraud, 84 percent said they would. Later, when faced with a specific, actual event, only 34 percent said they reported the occurrence, a drop of 50 percent. Since the latter question queried them as to acts they may have personally committed, it is logical to assume they would not report themselves. But, it appears unlikely this accounts for all of the 50 percent difference in those who would report in the abstract but not in reality. This may be simply because it is usually easier to espouse good intentions, rather than act on them. Or, there may be flaws in the reporting mechanism(s) that dissuade persons from coming forward. Awareness of reporting channels did not appear to be an issue, since 89 percent of respondents said they knew who should be made aware of such events.