Companies Brace for Onslaught of White-Collar Crime
Mounting evidence shows that white-collar crime increases during a recession. The 2009 Report to the Nation on Occupational Fraud & Abuse study conducted by the Association of Certified Fraud Examiners (ACFE) reveals that more than half of the 959 fraud experts polled performed more fraud-related investigations in 2008 than in 2007. About as many respondents also say known perpetrators reported feeling financial pressure before they committed the fraudulent acts.
The report also projects that U.S.-based companies lose 7% of their annual revenue to fraud. The ACFE adds that if this figure is applied to the 2008 U.S. GDP, fraud cost companies a staggering $994 billion between January 2006 and February 2008.
Moreover, the FBI had more than 1,600 open mortgage-fraud investigations at the end of fiscal 2008, compared with 881 two years earlier, according to the New York Times. In addition, 530 corporate-fraud investigations are currently open.
Making this troubling news even worse, the probability of a new fraud being perpetrated — or of a longer running fraud finally coming to light — is much greater in a recessionary climate, according to KPMG. Richard Powell of KPMG’s Advisory practice predicts “potentially a further one or two years during which the risk of fraud and impropriety is at its cyclical peak; a time during which I believe there could also be a veritable explosion in reported fraud.”
Embezzlement is a common white-collar offense, notes the Denver Business Journal. But the report quotes Daniel Purdom, who oversees the white-collar crime division of Chicago law firm Hinshaw & Culbertson, as saying that all forms of white-collar crime are on the rise.
“In difficult economic conditions, businesses are struggling to compete for fewer business opportunities. This creates more incentives to deviate from proper business practices and engage in fraudulent activities to protect and maintain revenue,” says Blake Coppotelli, Senior Managing Director in Kroll’s Business Intelligence & Investigations practice. “We saw a marked increase in the number of corporate fraud cases during the market downturns of 1987, 1991 and 2001.”
KPMG argues that in turbulent times like these though, the impact that a fraud may have can be far more marked than under better economic conditions. This is a particularly disconcerting situation for companies that don’t have the right systems or experts in place to detect the activity. Complicating matters, KPMG warns the many well-intentioned cost cutting programs that have been put into place may make companies more vulnerable to fraud - just when protection is needed the most.
“With the fat currently stripped from corporate bones, the potential impact of a sizable fraud could be shattering, possibly even terminal,” says KPMG’s Powell.
“Comprehensive due diligence — not a cursory ‘check-the-box’ review — is the key to managing exposure to these threats through the downturn,” said Richard Abbey, Managing Director in Kroll’s Business Intelligence & Investigations practice. “Companies should not think that they are safer in certain country markets — this is a global concern that spans all industries.”
In today’s economic climate a corporation can not look at security (including physical security as well as IT or data security) as something that will be implemented after something has transpired, according to one corporate security expert consulted for this article. Whether they are monitoring accounting practices, combating corporate espionage or taking steps to protect staffers and information overseas, multinational and domestic corporations must be keenly aware of what is out there to protect their people and their assets– especially during times of economic turmoil.
Facing the growing threat of fraud and its dire consequences, executive search firm, A.E. Feldman, reports that corporations are increasingly looking to corporate security experts to identify and help prevent white-collar crime. The recruiting firm is already addressing this growing need and is currently working with the industry’s leading fraud specialists.
If you want to indentify and protect your business from potential white-collar crime or discuss your firm’s talent or overall security needs, contact A.E. Feldman’s President, Mitch Feldman, today.
