Curt Verschoor on Ethics

CHAPTER 6FRAUD CASE STUDIES

Fraud Continues, but So Does Good Corporate Citizenship

Conventional wisdom indicates that a recession results in more fraud being committed. In fact, the 2009-2010 edition of the Kroll Global Fraud Report found that companies lost an average of $8.8 million to fraud over the past three years, an increase of 7% over last year’s average. Hardest hit were financial services firms—more than 90% reported being a victim of some kind of fraud. The findings result from a global survey of more than 700 senior executives in diverse industries performed by the Economist Intelligence Unit.

According to Kroll President Tim Whipple, “What goes up [in a recession] is the discovery of fraud, not always the same thing [as its commission].” He added, “Just like legitimate businesses, fraudsters are threatened by loss of income or the financial weakness of their businesses; Ponzi schemes are especially vulnerable. But other fraudulent areas—management conflict of interest, corruption, employee theft—also come to light when business conditions sour.”

The Kroll report goes on to describe industry and regional trends and to explain details of its findings. While the recession has increased the motivation to commit fraud, at the same time, less business activity provides reduced opportunities for corrupt practices. Three factors that often increased vulnerability to fraud in the past are having less effect this year: high staff turnover, entries into new and unknown markets, ...