Saturday, March 15, 2014

Fraud: Something that can be managed

Fraud is found in nearly every industry, with different levels of employees: from peons, to upper management, to the board of advisors. We often think of fraud on a large scale, such as the scandals within Enron and WorldCom - and people like Charles Ponzi and Bernie Madoff will forever be immortalized. As a matter of fact, all of these examples were mentioned in my accounting classes.  

However, fraud isn’t always detectable, nor will it ever go away. There will always be someone wishing to climb the ladder of power. Management can put measures into place to protect their company, as well as its shareholders, and keep them secure.

Pyramid schemes and changing a few numbers around are only a couple ways fraud in business is executed. What is vastly different now is that companies make more use of other businesses, partners, and contractors to get their job done. Employees feel more pressure than ever to perform up to par, with employers keeping their wages as low as possible, while giving management significant raises and bonuses. They aren’t necessarily complete sociopaths set out to scheme and embezzle. In fact, they probably aren’t having a laugh at the thought of getting away with it. They might even be ashamed. These are ordinary people who start out small. Maybe they steal supplies from work and work their way up to fudging the numbers. Maybe their house is being foreclosed on. Maybe they’ve got medical bills piling up. Or maybe they really are just greedy bastards.

While at the same time fraud is easier to pull off than ever, thanks to the internet (Hello, BitCoin), punishments are more severe than decades ago. Have you seen the number of years in a sentence for someone committing a white-collar crime, versus a violent or deviant crime? It’s a bit surreal how much longer someone can be locked away for committing fraud. Other punishments include: losing licenses, losing customers, and a harmful online reputation of the company. Laws have even been put into place to protect the welfare of victims from fraud. The Sarbanes-Oxley Act, (one of the first things mentioned in my Accounting class in college), passed after the Enron and WorldCom scandals, to protect investors from fraudulent accounting practices.

So, how do you control fraud from happening? Well, you can manage it as closely as possible. You can implement a system of checks and balances within each department. You can download anti-spyware/malware onto your computer. But ultimately, fraud is detected from the inside. Misconduct is often reported by “whistleblowers”. Whistleblowers are to be protected by law for reporting misconduct in business; however, employees are fearful to step forward because of intimidation and threats to their job and/or livelihood. It’s best for employers to assure their employees that stepping forward and alerting management, including the CEO, is the necessary thing which should be rewarded.

After all, when the damage is done, you won’t have your job, reputation, or freedom. 

Read more about fraud here

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