Mad as hell and stealing from employers

A like this article from forbes..enjoy

http://www.forbes.com/sites/crime/2011/10/25/mad-as-hell-and-stealing-from-employers/

A friend, who owns and operates a small business, had grown close to his sweet, devoted bookkeeper of 20 years. They shared family dinners, exchanged birthday and holiday gifts, and, by all appearances, enjoyed an ideal working relationship.

But, to his shock, he discovered she had embezzled roughly $250,000 over a 10-year period. The financial loss paled in comparison to the confidence he lost in his own judgment. He is a forensic psychologist and felt he should have spotted the thief. A 66-year-old New York bookkeeper was recently charged with embezzling $16 million from two family owned textile companies, depositing much of the money into her son’s business account.

Move up Move down

The Occupy movement, with protest signs reading “One day the poor will have nothing to eat but the rich” and “Bite the hand that feeds you” expose the anger and frustration many Americans feel about the current economic climate. The Association of Certified Fraud Examiners announced, in its Annual Report to the Nations, a dramatic rise in workplace fraud: A typical organization loses 5 percent of its annual revenue to fraud.

This translates to a global loss of $2.9 trillion each year. Churches, non-profits, Fortune 500 companies, small businesses and even the PTA will lose money from trusted thieves. Small employers take the brunt of the losses because they often lack the anti-fraud measures and the resources of large corporations.

Sociologist and criminologist Donald Cressey penned the term “trust violator” in his research on the behavior and motivation of embezzlers. Cressey discovered three factors present in the social psychology of embezzlers. They usually have some financial problem that they feel ashamed of and must keep secret. An opportunity to steal presents itself, and they rationalize the theft in some way that still allows a favorable self image.

For example, a bookkeeper, worried about her sick child’s medical bills, starts playing the lottery, heavily. She finds herself $200 short at the end of the month. She pays some household expenses with her credit card and now the charges are close to the limit. Knowing that auditors don’t closely monitor the petty cash, she finds an easy way to supplement her income by falsifying a small expense each week. She rationalizes the theft by telling herself her employer can sustain this small loss, she hasn’t had a raise in two years, and she’s saved her employer far more than $200 a month by catching several accounting errors over the years.

To spot a potential thief, look for the four D’s. They typically are Divorce or infidelity, Drug and alcohol abuse, Debts and gambling, or Disgruntlement and anger over their treatment at work. These problems propel some people to find a secret solution to their increasing desperation.

To prevent workplace theft, you have to remove at least one of the three causes for the fraud: secret financial problem, opportunity and rationalization. Most employers will catch thieves by establishing anonymous tip lines (40 percent of cases). Testing and background checks of new hires can screen out those more likely to steal. Employers can remove opportunity by cross-training employees, delegating accounting and bill-paying to different employees, establishing random audits, and providing anonymous suggestion boxes or tip lines to encourage communication with management.

But it might prove tougher to stop the rationalizations for theft. After corporate scandals like Enron and WorldCom, corrupt banking practices and corporate greed, the people are angry, scared, in debt and desperate. Young, bright college graduates can’t find work, and neither can accomplished career professionals over 50, while the cost of living ticks upward.

When you can no longer afford your health insurance copayments, you might feel some serious resentment hearing about your employer’s European vacation. When the average CEO makes $344 for every $1 paid to line staff, resentment will likely continue to grow. We live in an environment ripe for the rationalization of theft, fraud, and embezzlement.

Employers can do a lot to slow the hemorrhage of profits caused by employee theft. First take a look at leadership. If the business owner is an angry, type-A, alcohol-soaked billionaire, he or she likely employs some dangerously disgruntled workers. From the top down, does the company value honesty and integrity, or do managers cheat on their time sheets and expense reports? Do managers promote and hire ethically and fairly, or is the promotion or job given in exchange for favors? When employers cheat, they hand their staff a gift-wrapped rationalization just in time for Christmas.

A second way to minimize the rationalization of fraud is to establish a corporate code of ethics. Dishonest behavior by management can reduce the performance of highly skilled workers by 25 percent and increase employee turnover rates. Companies without a working code of ethics experience less productivity and more P/E volatility. Not surprisingly these organizations also experience more employee misconduct.

People like to work for companies they trust, and customers like to buy from companies they perceive as good. When a code of ethics gets implemented, talked about and enforced from the top down,

It should not surprise us that most of the big-business bankruptcies in recent history were preceded by moral bankruptcy. As Shakespeare said in All’s Well That Ends Well, “No legacy is so rich as honesty.” Believe it or not, it still pays to treat people decently and fairly.

Black Swans, risk and broiler chicken

You might be wondering where am going with this....what with the weird title. I must confess I wasn’t the best in school when it came to that section in English exam they called summary writing, the title could have been a one word or even a simple sentence like..Kennedys idle thoughts...or something close to that. But I must also say that Executives Summaries that i draft are impressive. I have wondering how come an organization can be OK today and tomorrow its no more. How come the world was surprised by the spectacular fall of Lehman brothers, Triton, Barings Bank... (Remember Nick Leeson) amongst others. Is it not the same surprise that a broiler experiences after six weeks? After six weeks of lavish feeding by the farmer i can only imagine the shock the broiler goes through one morning when a KenChick trucker packs outside the farm ready to transport the broiler ...in its meat form. in a broilers world such an event is unthinkable before the end of the six weeks..Actually it’s a highly improbable event...but how about the consequences...very high..Am sure you agree

How is your organization doing today...Am sure it’s doing fantastic..Will it be around tomorrow (am not talking about going concern here)..am sure you are 99% sure it will be..What if the outcome is the other way round? Can you tell whether it will happen..Maybe not (based on past info)...what can you do about it (may be risk management)..Will it work...i think it should...what am i saying...don’t be a broiler chicken....fraud can wipe out your business!! Enough said

"Banking slip" Fraud and other tales

Banking fraud (in the traditional sense of the word) in Kenya is on the rise. Most of the fraud is being committed by employees in conjunction with third parties. There are also independent fraudsters who are taking advantage of the rise in electronic banking and the increased use of credit cards and debit banks to commit fraud. This post relates to neither of the 2 types of fraud I have mentioned above. For a lack of better word I have decided to call it plain “banking slip fraud”.

It’s not banking fraud in the real sense but, the very existence of banks and people’s reliance on it as a safe and sure way of conducting business through it has led to its emergence and growth. Not many years ago politicians would attend harambees and contribute money in the form of personal cheques. It was a kind of popularity contest with politician who contributed most being able to woo support to his side. But soon we realized that the cheques were just that…mare papers!! Most of them would bounce and the politician was left laughing all the way to parliament. Most institutions of learning decided to reject personal cheques in favour of Money orders or bank drafts.

In recent times Landlords and most institutions including the Tax Authority require a direct deposit into their account and a bank pay in slip is accepted as a ……. But trust human ingenuity/evil minds a bank payment slip is no longer a guarantee that money has been deposited into an account. Some crooks have managed to create bank payment slips on demand. Since bank payment slips don’t have any elaborate/special security features it takes only a printer and there you go.

Many Landlords (especially the ones from Murang’a-I will explain why Murang’a later) who don’t bother to perform bank reconciliations (apparently...they don’t want others to know how much they have in their Equity Bank accounts) are shocked later when they find out that half their tenants have not being paying rent. But the most shocking is that this form of “fraud” is being perpetrated by agents of large taxpayers. Agents especially clearing agents collude with Tax officials officials to released goods whose import duty has not being paid fully. Once an agent receives funds from the importer to pay duty to the tax authority, only a fraction of that is paid through the bank. The rest is shared between tax officials and the clearing agent. The Importer gets a bank pay in slip indicating that the correct amount of duty was paid. Only later on when he is slapped with a tax bill from the tax authority does he realize what has been going on.

People be very worried…there is so much greed and laziness going around……I know I should have given solutions/recommendations…am working on them.

UK anti bribery Act-From the FCPA blog

Once in a while i will be posting articles from other bloggers that i fing relevant/interesting..here is the first one. For those not familiar with the UK Antibribery Act-here we go.

By Michael Volkov

The year 2010 was another record-setting year for anti-bribery enforcement. Headline after headline reported yet another bribery scandal with the usual results: corporate fines, jail sentences, new and aggressive law enforcement strategies. Business anxiety is on the rise. Compliance is the new mantra for businesses.

The new year brings even greater concerns for businesses around the world – the UK Anti-Bribery Act is scheduled to become effective in April 2011.  Fear of the new Act is on the rise. Contrary to the current hysteria, when all is said and done, the UK enforcers will act reasonably, build a track record and focus on egregious cases of bribery, with the focus on UK-based companies. While the law literally can be stretched to cover a number of far-out scenarios, commentators and law firm marketing agents forget about the most important factor – prosecutorial discretion.

A careful look at the issues and a fair consideration of the risks will help to reduce anxiety and focus organizations on what really needs to be done – a commitment and execution of real compliance.

The top three myths are easily addressed:  (1) Extraterritorial Reach; (2) Strict Liability for Failing to Prevent Bribery; (3) The Absence of a Facilitation Payment Exception.

Extraterritorial Reach

Lawyers, consultants and others have pushed this issue to the extreme. In the common scare scenario, a business which is headquartered outside the UK but conducts business in the UK will be found liable under the Act for bribery conduct which occurs entirely outside the UK. While it is true that such conduct may fall within the ambit of the Act, this scenario is unlikely to occur for two reasons – first, the Serious Fraud Office (SFO) recognizes that it has the authority to prosecute such a scenario but will decline to do so for political and precedential reasons. When asked about this scenario, Richard Alderman, the head of the SFO, has suggested that they would not prosecute such a case; second, such a prosecution would raise political concerns and the SFO recognizes that the last issue it needs to contend with is political inquiries. In fact, I expect the SFO will initially enforce the Act conservatively against UK-based companies.

Strict Liability For Failing to Prevent Bribery

A second issue of great concern is the new corporate offense for failing to prevent bribery.  Under the Act, a company can raise a defense that it had “adequate procedures” to prevent the bribe.  The SFO is in the process of issuing guidance on what constitutes “adequate procedures.”  Commentator after commentator has been raising questions concerning this issue. But the answer boils down to a simple equation – if the company institutes a basic compliance program, which is designed to include the basic elements outlined in the United States Sentencing Guidelines, the organization will be fine. If the effort is half-hearted or disingenuous, then the organization will be in trouble. This is not rocket science and there is no need to try to characterize it any other way.  But those self-interested parties seeking to promote fear and possible liability will not tell companies what really needs to be done.

The Absence of a Facilitation Payment Exception

Another issue which companies have heard about is the absence of a facilitation payment exception. Under the Foreign Practices Act, there is an exception which allows companies to make payments to foreign officials for routine services which the company needs to provide the government with a good or service. This exception is rarely relevant given the scale of the government’s investigations and prosecutions. However, for some reason, there are some who believe that the absence of such an exception under the UK Anti-Bribery Act will lead to significant liability for such actions. Again, such claims ring hollow in the face of reality – does anyone really believe that the SFO will initiate prosecutions for such payments which are by definition made without the requisite intent to illegally influence the recipient of the payment? I find it hard to believe that the SFO will no be focused on more serious allegations of corruption and bribery, working in close coordination with other international regulators, including the Securities and Exchange Commission and the Department of Justice in the United States.

Conclusion

While I am tempted to join the chorus of doomsayers on the upcoming implementation of the UK Anti-Bribery Act, I consider it more important to adhere to a belief based on my own 17 years as a federal prosecutor in the United States – prosecutors will reasonably interpret the law, prosecute cases that are strong and appropriate, and exercise discretion in a way to minimize political interference or backlash.  My comments, however, should not be taken as to minimize or excuse companies from designing and implementing appropriate compliance programs.
Michael Volkov is a partner at Mayer Brown LLP in Washington, D.C. His practice focuses on white collar defense, compliance and litigation. He regularly counsels and represents clients on FCPA and UK Anti-Bribery Act issues. He can be contacted here.

Reflections of a fraud investigator

So when they continued asking him, he lifted up himself, and said unto them, He that is without sin among you, let him first cast a stone at her.And again he stooped down, and wrote on the ground.
And they which heard it, being convicted by their own conscience, went out one by one, beginning at the eldest, even unto the last: and Jesus was left alone, and the woman standing in the midst.
When Jesus had lifted up himself, and saw none but the woman, he said unto her, Woman, where are those thine accusers? Hath no man condemned thee?
She said, No man, Lord. And Jesus said unto her, neither do I condemn thee: go, and sin no more.

First things first. I don’t consider myself a religious man. My Sunday school teacher must have been incompetent or maybe...Just maybe I have been reading too much of Richard Dawkins and Christopher Hitchens. But I have also immersed myself in the fine religious works of Karen Armstrong.

I am not about to get into preaching and neither is this post has anything to do with the bible or religion for that matter. However I have been thinking about this bible verse ever since the first day I got involved in fraud investigation and the profession of fighting fraud in general. Ever since I started writing reports detailing misuse of company resources and outright fraud by employees I have always wondered, are there levels of inappropriate behavior where as a "normal" (i shall explain later)  human being you should turn a blind eye on when carrying out  investigation. Is  my expectation of ethical conduct reasonable, do I expect of others to hold a higher moral ground than I would if were in their shoes. Should organizations deliberately set levels of tolerable
In most cases when organizations detect fraud and call in investigators, the investigator is tasked to bring out any element of fraud or deviation from the internal regulations of the company that he comes across.

To be continued….

What is forensic Audit?

Dishonest and fraudulent activity is present in virtually every organization of significant size, perpetrated by employees, customers, agents, claimants, providers, contractors, and vendors. With growing appreciation of the fact that there is an inherent risk that fraud will occur in an organization, auditors are becoming more vigilant in their duties with the aim of identifying fraud. However when fraud is discovered many organization’s are not sure who or where to turn to.

So, what happens when auditors or any other party do identify fraud in an organization? What should management do?

Management in most firms prefer to handle matters of alleged fraud as an internal affair. Most managers consider matters of fraud an internal affair that needs no external or independent intervention. Many managers expect or hope that the fraud will somehow go away once action has been taken on the suspected individuals.

No manager wants to have or be seen to have fraud problems. In fact most managers are often reluctant to acknowledge that problems exist -- unless the problem falls under someone else's area of responsibility.

This tendency toward willful blindness and/or willful ignorance results in a weak response just when a strong one is demanded. The organization sends a powerful message that it will at least tolerate, if not actually encourage, wrongdoing. Perpetrators know that they are safe. When such actions are taken there is a high likelihood of re occurrence of fraud.

How do you handle suspected fraud?

There is a misconception that once an external auditor has given an unqualified audit opinion on a firm’s financial statements, the firm is free from any fraud. It should be noted that in as much as an auditor has a duty to detect fraud and error, this is not his primary responsibility. Even when an external auditor discovers fraud and reports the same to management, the firm is unlikely to have necessary resources to investigate and take appropriate actions. Even internal auditors are not specialised to handle fraud investigations.

The concept of engaging professionals who have specialized in fighting fraud is yet to take root especially in Kenya. The term forensic audit and what forensic auditors do is still not well understood. In Kenya the concept of forensic audit is associated with government scandals. Organizations are reluctant to engage forensic auditors or accountants because such moves could be viewed as an acknowledgement by management that they are unable to handle fraud in the organization.

So what is forensic audit and how is it helpful to organizations faced with fraud.

Forensic audit can be defined as the application of accounting methods to the tracking and collection of forensic evidence, usually for investigation and prosecution of criminal acts such as embezzlement or fraud.

Forensic professionals provide assistance where facts and figures do not agree, or where behavior does not comply with expectations or regulations. Forensic auditors help investigate how long the fraud occurred and how the perpetrator carried it out, according to the Association of Chartered Certified Accountants. Forensic auditors can also act as expert witnesses in court proceedings.

Forensic audit aims at identifying whether a fraud has actually taken place, identify those involved and quantify the monetary amount of the fraud (financial loss suffered by the client), and to ultimately present findings to the client and potentially to court.

 Globally forensic accounting/ auditing has grown and today firms that provide forensic accounting services engage professionals with varied skills and have in their ranks Certified Public accountants, Forensic accountants, Forensic technology professionals, Data analysts, Lawyers, Finance professionals, Former investigative and law enforcement professionals. Forensic auditing professionals provide a wide range of services that include investigations, dispute advisory services, fraud risk management, regulatory compliance (incl. anti bribery & corruption and anti-money laundering services), intellectual property & contract governance, corporate intelligence, economics and forensic technology.“fraud is like cancer, once it starts, it grows spreads and if left untreated, it destroys its host”. There is therefore need for more appreciation of the immense benefits that could be derived by firms in engaging forensic accountants/ auditors whenever they are faced by a possibility of fraud.
Forensic accounting/auditing is a highly specialized field requiring highly skilled personnel who understand not only auditing and accounting techniques but also the relevant legal framework. Given the specialized nature of forensic accounting and the special skills and experience required, forensic services are usually provided at cost higher than traditional auditing. This may explain partly why most organizations are reluctant to engage forensic auditors but opt to leave the task of fighting fraud to their internal audit departments. Internal audit professionals may lack the requisite skills to effectively manage fraud in an organization and this may have adverse effects to the organization in the long term. As it has been observed

Kennedy Waituika

Kennedy is a forensic auditor working in Nairobi. He can be reached on Kenneddy86@yahoo.com

An introduction to this blog

This blog is for everyone. Fraud affects virtually all aspects of our life today. We hear about fraud in Government, private sector, NGOs, Education institutions etc. The effects of fraud cannot be under stated. This blog aims to provide an online platform where the growing community of fraud prevention professionals  in Kenya may congregate to discuss the tools, technologies, challenges, best practices, resources, and rewards of their chosen profession.

We look forward to a healthy discussion that will contribute to the growth of the "fraud fighting professional".

Welcome.