Sunday, May 10, 2009

provide a snapshot of the extent of fraud across the corporate world

TO BE NOTED: From the FT:

In-house fraud cases surge

By Robert Cookson in London

Published: May 10 2009 23:30 | Last updated: May 10 2009 23:30

Fraud committed against companies by their own employees has surged this year, new data suggest, providing fresh evidence that the recession is fuelling a rise in crime.

Whistleblower hotlines operated by The Network, a US group that provides compliance services to some of the world’s biggest companies – including Aviva, the UK insurer, Cisco and Yahoo, the US tech companies, and Delta, the US airline – have received a deluge of tip-offs about fraud in recent months.

Reports of fraudulent activity including theft, corruption and insider trading made up 21 per cent of all calls to the hotline in the first quarter, compared with 16.5 per cent last year and just 11 per cent three years ago.

Tip-offs about other types of compliance issues, such as sexual harassment or safety breaches, had remained flat or fallen, but fraud had been “gaining speed and momentum”, said Luis Ramos, chief executive of The Network.

The data, drawn from all levels of management, provide a snapshot of the extent of fraud across the corporate world. They come in the wake of dozens of investment scams, including Bernard Madoff’s $50bn Ponzi scheme.

The findings mirror a trend in recession-struck countries, in which crimes such as shoplifting and robbery are on the rise. A UK government document leaked last year forecast that theft and violence would increase sharply as the economy contracted.

The retail and financial services sectors were suffering particularly badly from fraud, Mr Ramos said, but no industry was immune. Mr Ramos said more of his clients were introducing schemes to encourage whistleblowers, even giving cash rewards for successful tip-offs.

He conceded that increased awareness of the hotlines, coupled with a greater willingness among workers to blow the whistle on colleagues, was part of the reason for the rise. “Employees ... are sensitive to the fact that their companies are in precarious situations and if they don’t help the company safeguard its assets, then they may find themselves out of a job as well.”

The Network’s findings tally with a survey released last month by the Association of Certified Fraud Examiners, the biggest anti-fraud body. In a survey of 507 fraud examiners, more than half had seen a rise in fraud in the past year. Almost 90 per cent expected a rise in scams and schemes in the coming months.

Employee embezzlement was the most commonly cited type of crime, the survey found. “In this economy, employees have seen a surge of incentives and opportunities to defraud their employers, and an increased number have reportedly yielded to temptation,” the ACFE said.

US organisations lost on average 7 per cent of their revenue to fraud last year – a total of $994bn – according to the ACFE.

Occupational fraud will become even more common, Mr Ramos said, if the downturn leads to more job cuts and pay reductions, which add to worker anxiety and damage company loyalty. “The wildcard is what happens to the economy,” he said. “If the crisis deepens, we’re going to see even more fraud than we’ve seen already."

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