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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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10.8 percent of respondents believed that the fraud would not have been prevented regardless of the controls in place.26 Again, Leuci’s diagnosis seems to be borne out. A certain small percentage of the population seems to see controls as a challenge to be overcome. In this regard, they appear to be behaving in much the same manner as predicted in Gottfredson and Hirschi’s general theory of crime. Most people, however, seem to respond appropriately to controls, at least insofar as we may reasonably infer from the data available in the report. Also, per the report, the victim organizations seem to learn from their mistakes; 72.8% of respondents reported that the control deficiencies that permitted the fraud to occur in the first place had been addressed.27
I return to my earlier comment about internal controls. Often, they are fine. The organizations that get into trouble either do not have them in any meaningful sense, or more likely, do not enforce them consistently and rigorously. All too often, this is a simple matter of resources. Far too many organizations are penny wise and pound foolish in their approach to internal controls staffing and monitoring, but seem willing to pay the almost inevitable price when problems occur, then bemoan the lack of ethical values in the employee population. As Leuci would probably argue, in an environment where no one ever checks, even the decent are tempted. The dishonest are free to run wild, while the upright are perplexed and frustrated as to why their organization allows this sort of thing to go on. Indeed, a survey co-sponsored by Walker Information and the Hudson Institute of 3,000 employees found that 55 percent of employees stated that the ethical dimensions of their workplace were important to them in terms of their loyalty and willingness to continue working there. On the negative side, only 42 percent said that the ethical or compliance problems were dealt with fairly or completely, only 56 percent said the ethical issues of the organization had been communicated to them effectively, and only one-third advised that they would be comfortable reporting internal misconduct.28
FRAUD EXPOSED
Such findings suggest that employees, whether vocal about it or not, are watching and are sensitive to how their employing organization handles issues of misconduct. Unfortunately, at least some portion of them seem to be saying, “If you don’t take these things seriously, why should I?” If such is the case, problems are sure to follow. As William Boni, the chief information security director of Motorola Information Protection Services, has noted with regard to digital intellectual property; “One of the best ways to help newly hired staff learn how to handle sensitive information is to indoctrinate them before they develop bad habits.”29
Some organizations have adopted more proactive approaches, such as performing periodic analyses of vendor, invoice, and other data to determine if there are patterns that may be indicative of employee fraud.30 Such efforts are laudable but can still only detect what has already occurred. In the experience of many forensic practitioners, even these programs are the exception and not the norm in most organizations.
In thinking about controls, we may benefit from envisioning them spatially. In terms of the amount of time and resources put into controls versus other fraud prevention techniques, it might look like the representation in Exhibit 8.1.
Exhibit 8.1 Relative Reliance upon Techniques in Occupational Fraud Prevention
In this case, the base of the pyramid represents the broad spectrum of time, effort, and resources that go into creating, maintaining, and improving traditional controls techniques. This is well and good but may represent more of a problem than we acknowledge at first glance. If the ACFE’s estimates, produced by the cumulative input of its responding members (a sort of Delphi technique), are accurate, then for a five-year period, 1997 through 2002, occupational
INTERNAL CONTROLS
fraud seems to be holding steady at about 6 percent of organizational revenue. That this number remains unchanged may be a function of the consistency of the respondents’ estimates, a result of economic conditions, the percentage of the employee population inclined to commit occupational fraud remaining steady, or perhaps the natural limit of what current controls can maintain.
Herein lies an area ripe for further inquiry. The ACFE’s 6 percent figure is a median number, with half of reporting persons having estimates both above and below that figure. It would be intriguing to know the characteristics of the controls in organizations significantly higher and lower than the 6 percent level. Joseph Wells has informed us that smaller organizations seem more prone to occupational fraud, but is this because their controls are also smaller and less robust, or is it a function of size and trust? In either event, there are probably a number of bewildering amalgamations of controls profiles: old controls in place for many years; old controls recently updated; new controls yet to be fully ingrained into the organization’s operational schema; good controls administered with adequate staffing and resources; good controls with inadequate operational support behind them; or many other combinations of controls and resources.
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