• silicon.com
• Management
• CIO Insights

By Will Sturgeon, 22 November 2005 16:40

NEWS

Debt is the major reason why employees turn bad and begin defrauding their companies according to one expert in the field of fraud.

Mike Adlem, managing director at risk consultancy Protiviti, told silicon.com he has interviewed many convicted fraudsters and found the common theme among all of them was debt. In many cases, Adlem said they were previously honest and hard-working members of staff who were dragged into a world of corporate fraud by financial problems - which ranged from "an expensive wife" or public school fees for their children to more common debt problems such as credit and mortgage repayments.

However, the incredible ease with which they were able to carry out their crimes and the fact their activities remained undetected for some time meant many were unable to stop stealing from their companies once they had cleared their debts – especially as they grew accustomed to their 'extra income', said Adlem.

He added: "Debt was the major problem for all these people. But they all said their companies were very badly run and they were all convinced they would get away with it. Once they realised they could it became increasingly difficult to stop."

One fraud commonly committed is the drafting of phoney invoices and transfer of funds.

Adlem said: "The problem with corporate fraud is that the people doing this are experts in their field. They know their companies inside out. They know the computer systems and they know exactly what to do."

The diversity of individuals he spoke to suggests nobody should be beyond suspicion, said Adlem, though many were otherwise innocuous middle-class middle-management.

He added: "Situations change and circumstances change. All the people drifted into fraud while they were within the company and some had been with their companies for a long time and had been honest hardworking employees."

The failure of companies to demonstrate a hard line on fraud and control the problem created added temptation for staff convinced they would get away with their crimes, he added.

He said: "In my experience I rarely see companies that are completely on top of this issue. A lot of companies don't treat this seriously."

But they certainly should. Protiviti estimates fraud is costing UK businesses around £2bn each year, though Adlem admitted it is almost impossible to gauge the full cost as so much goes unreported.

Adlem told silicon.com the cases which are known about are most likely "the tip of the iceberg".

He said: "The vast majority of fraud doesn't get reported to the police," citing "reputation" and a fear of "negative publicity" as reasons why companies would be keen to keep associations with fraud to a minimum. "They may figure they've lost the money already and are unlikely to get it back so it's easier to just hush it up and get rid of it."

However, he urged all companies to report any fraud within the organisation, saying the deterrent of jail time will be an important step in reducing the scale of the problem.