Fraud & Corruption: The Reality

Fraud & corruption - the bitter reality is that some form of corruption has affected every part of humanity. Every country, institution, and industry has corruption in it. To make a list of all the persons, industries, institutions and government officials that have been involved in corruption in recent years would exhaust the supply of paper before exhausting the list of names. What are the challenges for a Compliance Officer?

Fraud and Corruption: The Reality

The influence of corruption in governments is obvious.

  • Corruption shaped the national elections in France and the impeachment of the President of South Korea. Both incidents graphically show the extent of corruption and fraud in governments.
  • The military has had its share of corruption to include a US Navy Captain receiving bribes in in the Pacific to send navy ships to certain harbors for maintenance.
  • The auto industry with its manipulation of emission software, defective components in cars and 
  • many other questionable business practices have weakened public trust in their products.

The only positive in this negative aspect of modern business is that fraud and corruption are not bias. It can be found in in every institution and social class. Even religion has fallen victim to it, every race has practiced it, and both forms of government, democratic rule of law and dictatorships are infested with corruption. Strange point, that even countries that were oppressed, once they free themselves of their oppressors, the new free government was often infected with corruption and fraud.

Fraud and Corruption: The Statistics behind the Reality

The Association of Certified Fraud Examiners (ACFE) published their 2016 Report to the Nations: Occupational Fraud and Abuse - Global Fraud (cp. Association of Certified Fraud Examiners,” “Report to the Nations,”, 2016). Their survey stated that on the average companies that fall victim to fraud lose roughly 5% of their annual revenue to fraudsters. Most notable in the report was that the loss through fraud to companies without anti-fraud mechanisms was twice as high as the loss of companies with pro-active anti-fraud efforts.

Fraud and Corruption: The Ignored Reality

Pointing fingers to blame others has always been too easy. The industrialized democratic nations have done this for a very long time, pointing their fingers at so called “Banana Republics” in third world nations. Every country that claims corruption comes from other countries is the root of the problem.  Ignoring corruption does not stop corruption, it supports corruption and allows the corrupt to cheat society at large with little risk of being brought to justice, or having their illegal actions hindered. In some instances, the domestic government institutions tasked with preventing and investigating corruption are under-manned, poorly trained, lack funds, or allow their biases to keep them from effectively fighting fraud. After all, there is no corruption in their country, the other countries are corrupt.

Is corruption and fraud a part of human nature? Is that why it is so common, and can be found everywhere?  No one is born corrupt or a criminal. People commit crimes against their employers and society in general because they made rational decisions to do so. After a rational cost benefit analysis, having deemed the rewards of crime to outweigh the results of being caught, fraudsters commit crime. As crime is a human experience, where the fraudster works, their social and professional responsibilities, are not deterrents to committing crime. Steven F. Messner and Richard Rosenfeld, distinguished criminologist, offer a very good explanation of this phenomenon.  When goals cannot be obtained legally, illegal means are used. As obtaining wealth becomes the dominant concern, social control institutions lose their influence (cp. Messner, Steven F., Rosenfeld, Richard, (1994). Crime and the American Dream, Marceline, MO, Wadsworth Publishing ). This also explains why fraud knows no borders in the way of countries, institutions, race or religion.

​​​​​​​The Challenge for Compliance Professionals

So, the challenge for those working in corporate compliance and fraud prevention is both complex and great. Nevertheless, it is the task of the anti-corruption professionals in private business to understand that while it is impossible to eliminate fraud completely, as rational choice allows humans to choose to be corrupt. The job of the anti-corruption professional is to set good anti-fraud standards, make them clear and reasonable, and educate the members of their companies. Lastly, anti-corruption professionals must remain vigilant. Change is the logic of the universe, a theory that affects every business. Therefore as personnel, procedures, and forms of fraud change, the compliance professional must adapt to these changes to prevent corruption. 

Anthony R. Williams publishes the new series of articles about “Corruption: The Ignored Reality”. It will appear monthly.  A summary of the effect of corruption, the definition, historical background will be the focus of these articles.

How to prevent corruption is a topic that will be handled in future articles in this series.

Schlagworte zum Thema:  Betrug, Korruption, Compliance