March 12, 2009 -
Do you think the corporate world has more or
less fraud in the last 10 years than it used to? Do you think there are
more or less people who lie, cheat, and steal today than 50 years ago?
The
ACFE 2008 Report to the Nation
study on 959 fraud incidents shows that the top two indicators of
perpetrators were "living beyond means" and "financial difficulties".
So, in these difficult economic times, one might expect fraud to
increase. This report indicates that the way cited most frequently for
initially uncovering these incidents was through a tip, such as those
provided through anonymous hotlines. The prevalence of identifying the
incident with a tip increased from 24% to 46% between the report in
2006 and 2008.
While fraud seems to be increasing, so are the
size of the frauds themselves (ala Mr. Madoff), with more prevalent
media about them, and better ways of detection. Is our population
really more dishonest or in the typical yin and yang of life, is there
a typical honesty - dishonesty balance that exists?
I reflect on
a different time, about a half a century ago, when my grandfather met
Mr. C., an "enterprising" man who was selling profitable shares. My
grandfather initially bought some of those shares from Mr. C., but
asked for his money back when he heard that others were buying based on
Mr. C. touting my grandfather purchased shares. Only because of word of
mouth, many others asked for their money back, too.
As it turned
out, Mr. C.'s shares weren't worth the paper they were printed on... A
half a century ago, Mr. C. bilked a handful of people for a few hundred
or thousand dollars. In today's world, that could be millions or even
billions of dollars, with the right promise and the right "other
investors". The detection and publicity of Mr. C.'s downturn was
entirely different then versus now. In today's world, if Mr. C. and my
grandfather worked in corporate America, my grandfather could call the
anonymous hotline to identify Mr. C.'s fraudulent act. The internet
would likely be used to publicize his misdeeds if they were large
enough.
So, in summary, I wonder, are we experiencing more
fraudulent acts or are they just bigger, while we are doing a better
job of identifying them (through hotlines such as Ethical Advocate) and publicizing them? In these tough economic times, I suspect the answer is "Both"....