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Fraud Exprosed Whot you Dont Could Cost your company millions - Joseph W.

Joseph W. Fraud Exprosed Whot you Dont Could Cost your company millions - Wiley Publishing, 2003. - 289 p.
ISBN: 0-471-27475-5
Download (direct link): fraudexposedwhatyoudont2003.pdf
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To some degree, the Hollinger-Clark hypothesis may be borne out by more recent data. For example, the White Collar Crime Study issued by the FBI National Press Office on March 6, 2002, observes that: “The majority of white-collar crime offenders have had contact with their victims and are typically white males aged late-twenties to early-thirties.”11
Other factors Hollinger and Clark found to be significant were organizational positioning, observing that employees with the greatest access to organizational assets were more likely to engage in theft than those who did not. They also noted that while all age groups of employees could be found to engage in improper or illegal behavior, the tendency was greatest among the younger age groups.12
From this point, Hollinger and Clark moved on to the obvious issue of organizational controls, asking if there was any co-relation between controls and organizational deviance. In this effort, they examined five areas of common controls: company policy, selection of personnel, inventory control, security, and punishment. Generally speaking, they found these mechanisms to have some degree of effectiveness. They found that company policy can be effective in deterring theft, as could educating employees. The other control mechanisms were believed to like-
THEORIES OF OCCUPATIONAL FRAUD
wise have some deterrent effect, but their overall conclusion was mixed, at best. They opined that while organizational controls could be inferred to have some deterrent effect, it was neither strong nor consistent. The most realistic statement of their effect, they concluded, would be to recognize them as useful elements in a deterrence structure, but best understood as operating in conjunction with other factors less amenable to measurement or direct organizational influence. One of these factors was employee perception. Simply put, much like the child eyeing the cookie jar, employees who believed there was a high likelihood of detection and punishment were less likely to engage in improper behavior. 13
Finally, Hollinger and Clark commented on the issue of formal and informal social controls within the organizational setting, observing that while both were important, informal controls, particularly the opinions of one’s acquaintance and peers, were the most effective.14
Writing some years later on issues of ethical codes in organizations, James Bowman noted that in the absence of systematic guidance and sustained effort, it is likely that the average organizational member is being educated by happenstance events, idiosyncratic actions of individual persons and managers, or through the rumor mill.15
In his summary of Hollinger and Clark’s work, Wells concludes that organizational management would be well served to pay particular attention to four aspects of workplace life: (1) develop a clear understanding of theft behavior; (2) continually disseminate positive information regarding company policies; (3) enforce sanctions; and (4) publicize sanctions taken.16
Having followed Wells and his mentors through this history of occupational fraud theory, what does it tell us? It seems, on first blush, that Cressey was onto something. Time and again, we come back to the iron triangle of fraud: perceived need, opportunity, and rationalization. Hollinger and Clark, and others, have done valuable work in expanding our understanding of the nuances of these elements and of the efficacy of measures directed toward fraud deterrence, but at root level we are pretty much where Cressey left us many years ago. Given that each of us has needs, much less perceived needs, and that these change, evolve, and develop as a result of scores of extraneous factors, how does the organization deal with what is going on in employee’s heads and hearts? Further, perceived injustices within the workplace are legion, and if each is a potential motivation to fraud, must the organization create the world’s first perfect society to remain safe? We are told that controls are effective, at least to some degree, as are sanctions, but must the defeat of the iron triangle of fraud causation be countered with an iron hand of organizational control? Are we prepared for the cost, both economic and psychic, of such a stance, even were one willing to pay it?
Jack Bologna, a 40-year practitioner and writer in this field, offers his own set of characteristics for fraud behavior, which tend more toward the operational than psychological. He finds a general sense of malaise within susceptible organizations, with scant attention paid to rewards, controls, discipline, positive reinforcement,
FRAUD EXPOSED
and operations. Coupled with inadequate resources devoted to these dimensions, the organization becomes ever more susceptible.17
Bologna, while in some ways different than Wells, still seems to come back to Cressey’s iron triangle of need, opportunity, and rationalization. The words and emphasis may differ, but the base mechanisms seem to remain in place. Bologna does, however, offer some thoughts on the nature of fraud-prone organizations, which may be viewed as an interesting complement to the earlier work on fraud-prone individuals. Obviously, when the two meet, one would suspect the likelihood of improper acts to increase. Bologna cites the following characteristics as being significant: a distant and self-interested top management whose focus is on short-term economic goals; poor controls; inadequate loyalty and commitment on the part of employees; high turnover, especially among those entrusted with financial oversight; cash flow problems, coupled with a weak relative position in the marketplace; inadequate pre-employment background checks; lack of any values other than financial success; poor track record of positive ethical training; and poor history of responding to customer and vendor complaints.18
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