Financial Crime Investigation and Control
Martin S Fridson
618 words
1 September 2002
Financial Analysts Journal
99
Volume 58, Issue 5; ISSN: 0015-198X
English
Copyright (c) 2002 ProQuest Information and Learning. All rights reserved. Copyright Association for Investment Management and Research Sep/Oct 2002
Financial Crime Investigation and Control. By K.H. Spencer Pickett and Jennifer M. Pickett, John Wiley & Sons, Inc., 605 Third Avenue, New York, NY10158-0012, 212-850-6336 or 800-225-- 5945, 274 pages, $59.95.
Here are some scams that may occur in your organization if you are not on your toes:
* Putting extra names on the payroll and collecting wages for these "ghost employees."
* Altering the address on a customer's shipment to a location where a fraudster can receive it.
* Collecting pension payments for retirees who are actually dead.
* Granting loans that ordinarily would not be approved to friends who pay a 50 percent fee for the favor, then writing off the loans so that they do not need to be repaid.
* Setting up a dummy Web site that closely resembles a prominent company's site, then collecting sensitive credit card details from the victims who log on.
* Pretending to be an employee and depositing a small sum at a company cash office (using official company documents to avoid triggering a request for identification), then using official company documents to withdraw a much larger amount.
In Financial Crime Investigation and Control, K.H. Spencer Pickett and Jennifer M. Pickett provide a comprehensive guide to thwarting such fraud. Drawing on their experience in auditing and management, the authors prescribe an integrated approach that requires involvement by the board of directors, managers, and employees at all levels. The authors recommend, among other things, appointing a "Chief Fraud Advisor."
Readers will recognize that they are dealing with serious matters when Pickett and Pickett urge them, in the case of computer-related fraud, to regard the alleged perpetrator's PC as the dead person in a murder inquiry. In a similar true-crime-- stories vein, the authors write:
There is an art to managing informants, especially when they may have somewhat undesirable lifestyles and are able to get close to the criminals.
Clearly, certain aspects of the antifraud effort must be left to specialists. Still, it behooves every practitioner to be vigilant. As the authors persuasively argue, fraud can happen even in organizations staffed by seemingly trustworthy personnel. People of generally good character may experience financial difficulties, possibly related to substance abuse or gambling problems. Under duress, they may rationalize pilferage or embezzlement on the grounds that the amounts are too small to matter to a big, wealthy company and that, in any case, they will pay the money back later. Complacency and loose controls can make it easy for such individuals to yield to temptation.
Perhaps the greatest value of Financial Crime Investigation and Control is its emphasis on creating an ethical environment. "[S]offer issues of staff values, the rules of the game, and the way people behave," write Pickett and Pickett, "[are] cornerstone factors in the fight against deceit, which is what fraud protection is all about." To bring about the desired corporate culture, senior managers must not only promulgate standards but also, the authors argue, set the example:
When top managers send inconsistent messages, such as giving themselves huge pay raises or expensive "exploratory visits" or "networking opportunities" to exotic locations abroad, the tone is set for others to follow.
With superb insight into group dynamics, the authors highlight an immensely practical reason to pay attention, rather than lip service, to ethics: An ethical organization can effectively counter the heightened pressure to commit fraud that has resulted from greatly increased emphasis on stock performance in executive compensation. Ethical behavior is not only the right thing to do; it may prove to be the surest defense against organizational implosion.
Martin S. Fridson, CFA.
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