As you may know, acts of corruption come in many shapes and sizes. Throughout the course of the next few weeks, we will explore some of these acts in brief in our Corruption Profiles. These profiles will take a look at a number of ways in which people “cook the books”. Last week we looked at Embezzlement and Undue Influence. This week: Extortion and Fraud
How can fraud be defined?
Transparency International defines fraud as “the act of intentionally deceiving someone in order to gain an unfair or an illegal advantage (financial, political or otherwise). Countries consider such offenses to be criminal or a violation of civil law.”
What is an example of fraud?
Victims of food fraud range from the local consumer to large companies.
In 2010, the Washington Post reported that the Food and Drug Administration (FDA) had been pressured to combat rising food fraud. The FDA is largely responsible for the accurate labelling of food products, among other things, and the United States food industry says that federal regulators are not doing what they can to put a stop to food fraud. A number of cases were mentioned in the article, such as the following:
Some honey makers dilute their honey with sugar beets or corn syrup, yet they market their product as 100 per cent pure and charge a premium price.
Peter Xuong Lam, president of Virginia Star Seafood Corporation of Fairfax, was convicted last year of selling mislabelled catfish. He had imported 10 million pounds of cheap, frozen catfish fillets from Vietnam and sold them to national chain retailers and wholesalers as grouper, red snapper and flounder, all of which have greater commercial value. He was sentenced to five years in prison and has been barred from importing fish from abroad for 20 years.
What is a possible solution for fraud?
A report by Ernst &Young, Emerging Stronger: India Combats Fraud, states that “historically, organisations have focused more on protecting themselves against external threats of fraud.” However, a survey which they carried out (the details of this survey are found in the report) shows that employees pose the greatest security threat to an organisation, due to the access they have to sensitive company data and information.
The institute of Internal Auditors, The American Institute of Certified Public Accountants, and The Association of Certified Fraud Examiners in the United States have made a number of recommendations concerning the prevention and detection of fraud in the following publication: Managing the Business Risk of Fraud: A Practical Guide.
Some of their recommendations are the following:
As part of an organisation’s governance structure, a fraud risk management programme ought to be set up. This programme ought to constitute both prevention and detection measures to counter fraud. Prevention measures may include thorough background checks performed on potential employees (limiting the possibility of hiring persons suspicious of untrustworthy behaviour), and mandatory anti-fraud training. Such training may take place upon initial orientation and ought to be implemented as on-going education with periodic updates and refresher training sessions. The purpose of these training sessions would be to familiarise employees with the organisation’s fraud risk management programme (which may evaluate a company’s code of conduct and ethics, define what constitutes fraud, and instruct employees on what to do when they suspect any incidences of fraud). This serves to establish and reinforce an organisation’s commitment to its anti-fraud policy/policies.
Detection measures may include a whistle-blower hotline. This is one of the most effective measures that organisations can implement into their fraud risk management programmes. Ideally they offer a multilingual service 24 hours a day, 365 days a year. Informing all stakeholders about the existence of this hotline will help to raise awareness of it, and encourage the use of it. The anonymity of any individual who reports suspicion of fraud should be strictly observed and all reports should be attended to appropriately and timely.
Fighting Fraud Together: the strategic plan to reduce fraud published by Home Office (UK) is another source which offers useful information about raising an awareness of fraud, implementing preventative systems to keep fraud at bay, and strengthening due punishment for acts of fraud committed.
Image: Ben Lawson (CC License)