Fraud - An Inevitable Truth

 

FRAUD

 

 

Fraud - Deceit/Deception (Dictionary Meaning)

 

Dishonest Intention to obtain wrongful gain (more in a legal sense)

 

Numerous aspects of our life are associated with this term and stories will keep emerging till the end of human race.

 

The list of reasons that lead to Frauds are non-exhaustive however the root-cause is just a couple of things:

 

1. Unawareness/Non-Alertness of the victim.
2. Dishonest Intention of the accused.  

 

Frauds can happen and do happen whether we are at work or holiday...so it can happen in any scenario where the intention are malicious, mischievous, full of greed etc.

 

When I use the word malicious, greed etc. it has be to interpreted/judged in terms of ethics, integral standards, moral values and not  in terms of what is legal/illegal.

 

What may be perceived as legally right may not always be ethically correct......

 

One of my colleagues rightly said that crime will only end with extinguishment of human race which I believe is not a solution to the issue under consideration hence no matter the amount of laws or internal controls we have the human race has the capabilities to counter them with their sharp minds.

 

We are the ones responsible for emergence of virus and we are the ones who develop anti-virus to counter it....

 

So not drifting to far from the topic i.e. Fraud - An Inevitable Truth

 

Having worked with FED - Federal Government  in the past for considerable time I made a courageous decision....I have started my own venture...I now conduct training sessions for corporates on Fraud Investigation/s and also provide consultation on strong internal control measures, best business practices, good governance and likewise.

 

The profile I worked on involved investigations....not divulging in too much details as their may be privacy issues however I can definitely share the experiences.

 

I must say during these 3 years I encountered so many stories about fraudulent behaviour of an individual and the elements that force them to pursue such behaviour... the common denominator that I came across was a single lie followed by series of lies.

 

For a fraud to happen the first step is that the perpetrator has to be unethical....though it can be safely stated that the perpetrator/s could be legally right but for sure is morally wrong.

 

For e.g. Speeding through an Orange/Yellow Signal @ traffic would not be illegal but stopping at it is ethically right.

Having a registered office of a multi-billion $ corporation in a Tax Haven as against the place where most of it's operations are finalised...or conducted....

 

So the whole ball game boils down to a debate between ethical vs. legal...

 

To give you an example which we all would associate ourselves to is...try to remember a scenario when you or your colleagues/friends/family fabricated series of excuses to avoid an obvious situation ..this may be work related or otherwise.

 

We all will strongly agree that once we lie about a situation then we have to build a web or series of lies to protect our first lie.....

 

Similarly with fraud the intention is to deceive the user of the information to make wrong decisions.

 

The human greed has no boundaries....we have lost our connection with integrity, moral values, harmonious life.

 

Now a days in a corporate world the fraud happens either at management level or at employee level.....gone are the days when frauds were committed by external vendors.

 

Not to say there are none that fall in the latter category but now a days the major corporate scandals have emerged internally within the organisation.

 

The top management is under tremendous pressure to meet the street expectations and also board's forecasted unrealistic number/s which also sets benchmark for the bonus figures and big fat pay checks.

 

On a bright morning the CEO/CIO/CFO or even the board sit for a meeting on a cup of tea/coffee with snacks and decide some hypothetical targets without taking in to consideration the state of the industry or economy.....The top execs try to impress upon the board they can manage the show and hence justify their own remuneration...the board driven by the greed to increase the value of their individual holdings...try to turn a blind eye to an obvious blunder that is about to take place....

 

Result of these meetings are discussed aggressively with the press...the press by adding it's own spice print/s it in the media....which the market receives positively and in turn the small time investor/s invest their hard earned money based on spiced up unreliable data....

I can quote numerous example/s from our stock market where the price movement/s in a particular script is not justified by it's P/E or it's fundamentals but is solely driven by hyped forecasts....corporates are completely in huge debt/s but yet they are trading @ price which is difficult to substantiated if the true indicator/s are depicted in press and not the spiced up ones....

Let's take an example of a fraud that was I believe the biggest accounting scandal in the history of Indian Corporate World.....the Satyam Case....

 

The CEO & MD came out with a letter to Board and its Shareholders citing the unreliability of audited figures appearing in the books of accounts....result the shares nosedived sharply...

 

A committee was appointed to come out with it's findings and report on the same...

 

It can be safely stated that if not billions...millions of hard earned earnings would have been lost at that stage....who was going to account for it, was a million $ question?

 

Internal Controls, Governance, Ethical Standards, Accountability was overridden by insatiable greed of the mentor/founder member....everyone pointed the finger at one man...well no one discussed the indirect involvement which may have been pushed the perpetrators....no doubt the perpetrators were the face of the scam but the spirit that drove the body was hidden....

 

The financial losses would have been recouped from the personal assets of top execs but what about the non-financial losses....loss of jobs, savings etc.

 

A fraud not only leads to financial loss but also has non-financial repercussions...large economic losses and stigma to the social standing of the nations; we tend to recover the losses which are easily measureable but the vacuum created by the event is always void.  

Strong Internal Controls, Good Governance and Best Business Practices would definitely help but if an organisation wants to reduce frauds to a respectable level then they need to build.... something called an ETHICS DEPARTMENT which would vouch for all other departments like Finance, Legal, Compliance, Administrative, Manufacturing etc.

 

This department would be an autonomous body unrelated to the organisation with members whose appointment and functioning would not be within the organisation's domain/purview.

However it is paramount that these checks may not ensure the  compliance we are targeting but never the less the right amount of check points supported by independent bodies who closely monitor the operations would surely reduce the extent/frequency of frauds. 

We talk, discuss and debate about corporate social responsibility and reporting as eminent part of reporting standards yet we fail to acknowledge the levels of securities that  are being penetrated....day in  and day out in corporate world whereby fraudulent reporting has become a norm and unqualified reports by the auditors a routine....

I believe there needs to be a strong shield for people who intend to become whistle-blowers...the ETHICS DEPARTMENT should provide adequate support and protection to everyone who stands by the truth and values which are fundamental to the existence of the organisation...

I believe in a longer run for sustainable development of the economy at large we should have strong ethical and moral values....to contain our insatiable greed.

All the Best!! Let's Contribute to positive and sustainable growth!!!

As always please share your views and ideas....expand my learning curve:-)