Fraud High on Corporate Agenda, Opportunities Growing
A federal judge rejected Bernie Madoff’s plea for leniency Monday, sentencing the 71-year-old to spend the rest of his life in prison for an “extraordinarily evil” fraud, according to the AP. The report notes that U.S. District Judge Denny Chin cited the unprecedented nature of the multibillion-dollar fraud as he sentenced Madoff to the maximum of 150 years in prison. Madoff pleaded guilty in March to a massive fraud, in which he paid off old investors with money from new clients. Prosecutors had identified 1,341 Bernard L. Madoff Investment Securities account holders who collectively lost more than $13 billion.
Meanwhile, New York hedge-fund manager Edward T. Stein pleaded guilty to running a $30 million fraud, according to Bloomberg. Stein, 59, recently admitted to four counts of securities fraud and one charge of wire fraud. The report adds that Stein faces as much as 19 years and seven months in prison.
Now, with regulation expected to tighten in the wake of high profile fraud cases such as the Madoff scandal, experts say that companies will need to re-examine their financial controls, corporate governance, compliance and transparency policies. As these massive instances of fraud took place right under the noses of experienced investors and regulators, the Association of Certified Fraud Examiners (ACFE) argues corporate executives and management should now be tackling the issue of fraud in their own companies. As well they should, Luis Ramos, CEO of the Network - a technology-based compnay providing information lifecycle management services - says the number of whistle-blowers reporting fraud, theft or the misuse of company assets is “going up dramatically.”
Recession Boom Time for Scams
With credit scarce and jobs precarious, the ACFE says there’s little doubt we’re in a boom time for scams. “Companies are restructuring, revising their strategies, trying to preserve their interest, their cash, their asset position. And because of looking at their businesses, they’re starting to find more fraud,” says Hitesh Patel, Fraud-Investigation Partner at KPMG in London.
Moreover, a study conducted by the Association of Certified Fraud Examiners (ACFE) finds that cost cutting measures are leaving holes in organizations’ internal control systems leaving them more vulnerable to fraud. The research also found that employees pose the greatest fraud threat in the current economy. A separate study conducted by the Ponemon Institute echoes this view.
Employees are ignoring data security and engaging in activities that could open firms up to increased risk of fraud, according to Ponemon. The study reveals that many staffers are engaging in sloppy behavior that could jeopardize a firm’s data security.
Ponemon’s study also shows that nearly 70% of the 967 professionals polled, violated company protocol by copying confidential company data to USB sticks. (Some of the respondents even lost USB sticks, but did not report it immediately.) The survey also took into account new technologies that could bring rogue software to computers, like social networking. Almost 31% of respondents engaged in social-networking practices on the Web from work PCs.
Moreover, KPMG’s 2009 E-crime Survey concludes that employees may be more willing to steal data or sell insider knowledge, according to Computerworld. The survey found that 66% of respondents feel that out-of-work IT professionals would be tempted to join a criminal underground as a result of the economic meltdown and use their knowledge against their former companies.
The KPMG survey also finds that fraud committed by managers, employees and customers tripled last year in comparison with 2007, which indicates that the recession will likely exacerbate those problems.
Top-Down Approach to Fighting Fraud
Though more staffers are ignoring security protocols, recent research reveals employees around the world have a grim view of the next few years and a growing majority expects an increase in fraud. Ernst & Young’s ‘European fraud survey 2009′, which polled more than 2200 individuals employed at companies across 22 countries, revealed that 55% of respondents expect instances of corporate fraud and corruption to increase. Moreover, respondents said change must come from the top - on both an internal and external basis.
The vast majority of those surveyed, 70%, believe that directors should be held personally responsible for instances of fraud that occur within the company under their watch. Additionally, 64% of respondents say governments and regulators should increase their oversight in order to reduce the risk of serious fraud.
Despite rising rates of fraud and expectations that this trend will continue, Dr. Michael Faske, Ernst & Young’s Fraud Investigation & Dispute Services Leader in Switzerland believes there is a silver lining with fraud now so high on the corporate agenda. “The good news is that the current period of adversity can present opportunities to drive change more rapidly and effectively than in more prosperous times. Now is the moment for management to act urgently and emphatically to reinforce the importance of ethical business conduct.”
Already, SFO, the UK’s top fraud watchdog has hired a Chief Information Officer to lead its efforts in using digital technology to snare criminals in the financial services industry, according to Dow Jones Financial News. The report notes this comes as another fraud investigator predicts that there are still serious cases of wrongdoing to be uncovered in the sector.
Now, 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 addressing this growing need and is currently working with the industry’s leading fraud investigation and recovery specialists. Mitch Feldman, President of A.E. Feldman, says the firm’s recovery team has already located and returned billions back to its clients.
Are you working in corporate security? If you want to grow your career or discuss your firm’s talent or security needs, contact A.E. Feldman’s President, Mitch Feldman, today.
