• silicon.com
• Management
• CIO Insights

By Andrew Swinton, 4 February 2003 16:03

NEWS If your boss has recently been promoted - watch out. A global report by Ernst & Young surveying 400 companies found that half of all fraud is committed by managers who have been in their roles for less than one year. Fewer than five per cent of all fraud investigations rely on securing electronic evidence such as disk drive images, emails and access logs. This may because such evidence is not widely admissable in courts of law, and that those responsible for conducting these investigations are not wholly competent when it comes to the use of IT. The implication is that effective use of IT could help clamp down on fraud, which costs companies huge amounts of money: the scale of the fraud in most cases in the survey was less than £60,000 but in 13 per cent the losses were over £600,000 and threatened the very survival of the organisations involved. The true cost of fraud cannot be measured in purely financial terms however, as it has an adverse impact on reputation, management time, morale and trust within teams. Of the fraudsters, 85 per cent are on the payroll. Fifty-five percent were in management, 30 per cent were employees, six per cent were from organised crime syndicates, five per cent were clients and four per cent were suppliers. Of the management fraudsters, 85 per cent of managers committing the largest frauds had less than one year's service in their current post. Grey areas exist in corporate governance investigations on subjects such as 'What is allowable as a corporate expense?' because people push the boundaries until there is a complaint. David Sherwin, partner in charge of global special investigations for Ernst & Young, said: "Management are particularly guilty in this area as they get access. They are the ones that people tend to query less. They are in a position of trust and therefore there are fewer challenges at management than there are for more junior people." Sherwin added: "The problem with this is a lot of the management that we identified have been recently promoted into the management role. They therefore have been with the company five or ten years and knew something of the company's modus operandus." In previous global fraud surveys by Ernst & Young, half of all frauds were by employees who have been with the company five years and a quarter were by those who have been with the company for ten years. Sherwin said one source of fraud was people promoted to management with a lot of pressure to produce results. "In this market it is difficult for them to deliver. Rather than disappoint they 'deliver' and they do all sort of stupid things," he said. "Some of the fraud is for personal gain, for bonuses and things like that but other times it is for self-preservation. You could be inflating results." Transient staff, the growing complexity of organisations and greater access to knowledge via the internet were all fuelling the risk of fraud, stated John Smart, forensic services partner at Ernst & Young.