Detecting Fraud in Organizations: Techniques, Tools, and Resources

Chapter Five

The Dynamics of Business

Everything Is Related—from People to Processes to Outside Influences

All is connected... no one thing can change by itself.

—Paul Hawkin, environmentalist, entrepreneur, journalist, and author

People in organizational processes have external standards, or benchmarks, that are established for them by credit rating agencies like Moody’s, Standard & Poor’s (S&P), Fitch, and Risk Management Association (RMA).1 This helps potential fraudsters to understand the landscape of numbers the industry expects them to meet, so they can maintain the targeted perceptions, remain undetected, and create the value needed to steal. These credit agencies are worth discussing because they can create a level of comfort by stating that a company is rated AAA and is thus strongly creditworthy. It is often these types of ratings that investors, creditors, the public, and government agencies look to in determining organizational risk. However, these credit agencies do not attempt to detect fraud and simply rely on the numbers presented to them by the same people (management, possibly including potential or actual fraudsters) in the organizations they are rating.

What are the conflicts of interest that exist between credit agencies and the organizations they rate? Neil Weinberg, the chief editor at Forbes, revealed that by “providing huge payoffs to their salespeople, banks were aggressively pushing new products to increase volume. Soon, banks were packaging loans and ...