In the Year of The Scam – The Rise of White Collar Crime

Scams of amazing magnitude in the government; frauds that have the potential to bring down big companies are carried out by employees in the private sector.  2010 could well be ‘The Year of The Scam.’

The politician-businessman nexus has come to the fore with a vengeance, putting a new spin to public-private partnership!  Equally disturbing, if not scary, is the rise and rise of employees ransacking the coffers of their employers.  Gone are the days of misappropriating stationery and inflating expense sheets.

The ingenuity of the employee fraudster is a testament to their mis-applied intelligence as well as the lack of caution on the part of businesses.  The ‘it cannot happen to us’ outlook is all too prevalent in Indian industry.

Lots of companies do not report or prosecute theft by their employees.  Only 20% of companies in India carry out employee background screening.  Many companies – especially the SMEs – have little or no internal controls.  Those that do have them do not apply them rigorously.  The result is an average loss of 5% of annual revenue.

However, what is very clear in the scams that have come to light during 2010 is that they involve high technology, huge sums and a thorough knowledge of the victim companies’ processes.  That translates this way – the employees are senior management, have access to many process areas, are trusted and their activities not carefully monitored.

The higher the position in the organisational ladder that the fraudster occupies, the greater the loss they cause the company.  The very complexity of the scams shows that two things are either lacking or very weak – robust internal controls and thorough and regular background vetting of employees.

Just because a person has been in the organisation for several years, draws a hefty salary and occupies a position of trust does not mean that they will stay honest.  The circumstances of the employees change, the perception changes.  Also if an opportunity presents itself and they assume that they can get away with their crimes, they will seize their chance.

The best way for companies to stay on top of the situation and prevent the embarrassing frauds that we have seen all year, is to keep a continuous tab on their employees.  It is well within their rights.  When staff know that they are being monitored they are much less likely to abuse their positions.

As with all things – an ounce of prevention is better than a mountain of cure.

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