Commercial crime is a massive global problem and one that can often remain undiscovered for years. Statistics are hard to come by, especially as it is often a loss that companies do not wish to be publicized.
According to the Association of Certified Fraud Examiners, the figures are extraordinary: survey participants from 106 countries estimated that the typical organization loses 5% of its annual revenue to fraud*. Applied to the estimated 2009 Gross World Product, this figure translates to a potential global fraud loss of more than USD 2.9 trillion. Nearly a quarter of the frauds involved losses of at least USD 1 million.
Ways to spot crime within your business
Commercial Crime takes many different forms. It may arise internally through employee fraud or theft, or externally with criminal gangs and cyber thieves. Past experience shows that there is an increase in criminal activity during an economic downturn, and companies should be extra vigilant about the possibility of employee fraud, especially where redundancies, cost savings, and salary freezes are being implemented.
There are some classic risk indicators that companies should be aware of, though clearly caution should be exercised before considering whether fraud is taking place:
• Employees over-stressed, working late, reluctant to take holidays. • Employees with unexplained wealth or living beyond apparent means. • Increase in customer or supplier complaints. • Subsidiary results ‘too good to be true’. • Close relationship between individual employee and contractors/suppliers.
Beating the criminals
criminals Overseas offices Commercial crime often takes place well away from the head office, often in small subsidiaries and overseas offices, where the local manager may have considerable power, legally and/or culturally. There is also the potential problem of using ex-patriots from head office as managers where they do not fully understand how the local business works, or the local language and culture. It is, therefore, important not to forget about remote subsidiaries when it comes to internal auditing, as well as ensuring compliance with the corporate policies, especially in relation to approvals and authorities.
Successful divisions Another area that requires careful attention is where part of the business, a subsidiary or a division, is doing extraordinarily well, to the point where senior management or the board of directors decide simply to let them carry on and often will ignore warning signs from internal auditors.
An example of this, which involved the collusion of senior management at a subsidiary of a major listed business, saw the alleged theft of in excess of USD 25 million over more than five years, which was overlooked by internal audit, partly because the subsidiary had been expanding and was extremely profitable.
Visit our website : http://www.zurich.com