All companies are exposed to the business war of fraud and other losses at all levels of their operations, but the most significant are costing billions of dollars annually without being detected because of inadequate monitoring systems.
Fraud is the most important element in a war which is all round us all the time. An employee of company ‘A’, in charge of security and safety at the plant was arrested by FBI for attempting to sell proprietary information on the manufacturing process for a specialized product to company ‘B’, a competitor.
He also offered similar information on another product and carried out acts of corporate sabotage to stop ‘A’s production. His motive appears to be revenge for being passed over for promotion. He was unsuccessful because ‘B’ reported the offer to ‘A’.
The pirating of well-known brands by fixing apparently genuine labels to cheaply copied goods such as tennis rackets and balls has reached epidemic proportions in many companies. And if you are offered a sold watch with a famous name in the middle, it is almost certain to be a copy, especially if it is offered at an average or low price.
Many people, especially Japanese will deny the fraud exist at all in their country, saying that it is a western phenomenon unknown in their culture. Yet some shareholders who are literally called Yakuza and Sokaiya were extorting billions of yen from nearly 30% of all Japanese companies.
All over the world, the risk of fraud apply equally to every company imaginable. Every business has something to lose. All can be enticed, stolen, bribed, wheedled or mugged away. Fraud happens to everyone, but the risk increase directly with the budget and complexity of the organization.
Even at a legitimate, the competition usually want to out-maneuver most successful companies and, almost by definition, this means increasing share market or “stealing” customers. Many competitors are ethical, and at a corporate level, would not use fraud to increase their market share.
However, an increase number of start-up companies are formed by ex-employees of their competitors who literally steal business by sabotaging their former employers’ relationships with customers.
Another factor which influences fraud in start-up business where the founders have previously worked for a major practitioner in the same field, is the knowledge they have acquired during their time with the major player including access to confidential information, such as customer addresses, technical data, research and development intelligence and financial strengths.
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The fact is, fraud does not have to be perpetrated from outside an organization. It is within a proportion of workers who defraud. The enemy within think they can get away with it.
Research has shown that, in a susceptible environment, up to 75% of employees will defraud their employers in some way including falsifying performance records, taking or offering bribes or selling commercial secrets to the opposition and many more. Any employee can pose a threat including permanent or temporary, senior or junior staff, cleaners, security guards etc.
How To Stop This Fraud From Happening
How can you minimize the chances of being defrauded or sabotaged by your own employees?
You first have to analyze the vulnerable points in your organization, and identify the different ways in which an employee can defraud his or her employer (you); and set out the major steps by which fraud prevention, minimization and containment can be organized.
Secondly, make sure that your intelligence is good. Insist on immediate and full incident reporting from all branches of the business, irrespective of normal reporting lines or internal politics. Without, speedy notification of the facts, you are not in a strong enough position to be able to take informed decisions.
Centralizing financial data too, is a sensible step in that, it restrict control to a smaller number of core managers and reduces the risk of unauthorized access and potential fraud. Many quite large organizations have a policy of not retaining tight, centralized control, but prefer to devolve it and are less secure as a consequence.
A common oversight is the necessity to exercise strong control over the voice transfer of funds, an area which can too easily be overlooked but which can often allow relatively junior workers to very considerable assets without prior checking procedures.
The same principle applies also to bank instructions sent by fax, and foreign exchange management which can evolve major sums of money and other assets. Use reliable softwares too. Prevention is far better than being painfully defrauded your employees.
