Why people commit fraud
Financial stress is widely recognized as one of the key reasons why people commit fraud. Some people commit fraud for other, pathological, reasons, but these are small in number and not typically the kind of fraudsters we deal with daily.
However employees and suppliers who have had a long and trusted relationship with you may feel added pressures when there are dark clouds on the horizon. Presently with the price of oil, coal and other minerals at recent record low, many Resources and Energy Sector employers are looking to reduce costs to help mitigate any potential losses. Orders are down, inventories are being reduced, payment cycles are increasing; there is generally a greater level of uncertainty right now.
Your staff and suppliers may feel their position with you is threatened and start to worry about their short to medium term future. At the same time your staff and suppliers are seeking their cost of living and business costs increasing, with little they can do about it.
It is at exactly these times of economic uncertainty that your staff and suppliers will start to feel increased stress about how they will meet their own financial obligations. For many it is a lifestyle issue, for others it really is a matter of survival. Committing fraud is often seen as the only way.
Your staff will worry about how to pay their rent, mortgage, car lease, school fees, medical bills, a wedding perhaps and even how they will take that much longed for overseas holiday. Your suppliers will worry about how to pay their own staff, rent, creditors as well as their personal expenses which will not be reduced at all. These stresses can cause otherwise logical, and dishonest decisions.
In this environment it is much easier for people to "rationalize" their actions should they feel the need to commit fraud. Those under financial stress may consider that their need is greater than yours. They may start out "borrowing" some money with the faint intention of "repaying" it at a later time. They may be so desperate to maintain their current lifestyle that this is their only rationalization. They may feel they are entitled to this money given how long they have worked for you and how important they see themselves in the success of the organisation. You know who all these people are in your organization already.
In times of financial stress companies often reduce headcount, primarily as a cost saving measure. However this also increases the workload and responsibility of those who remain. This has the unintended consequence of removing some formal and informal internal control and surveillance capacity. Put simply, less people doing more work have no time to worry about what anyone else is doing.
The good news is that there is much you can do to mitigate the potential for fraud. Below is a short list of possible countermeasures that you can implement.
- Fraud awareness / training allows staff be aware of what to look for
- Whistleblowing system give staff and suppliers a change to report concerns
- Fraud risk reviews identify potential "hot-spots"
- Forensic Analytic reviews identify anomalous transactions or payments
- Supplier/Vendor audits identify potential conflicts of interest
Censere has many years of experience advising clients across the Asia Pacific region on such matters. our subject matter experts are located across Asia, including in Indonesia, Singapore, Thailand, Hong Kong and China. we will be pleased to come and discuss your specific or potential issues with you, without obligation.