Tough times make it harder to cover up fraud: investigators
By TEH SHI NING
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(SINGAPORE) Fraud busters are having their hands full, as deteriorating economic conditions produce a marked rise in fraud cases.
In a scene played out across the region, a whistle-blower's allegation against senior management led a Malaysian company's audit committee to call in fraud investigators from risk consultants Kroll.
The team, with forensic accountants and computer forensic experts, as well as people with law enforcement and investment banking backgrounds, then launched a full investigation, which unearthed a large-scale case of fraud that had been going on for six years.
With Ponzi and other schemes hitting the headlines, it's no wonder that fraud professionals are chasing a lot more cases. Over half of some 500 fraud examiners based in America surveyed by the Association of Certified Fraud Examiners in February and March this year said that they had encountered higher levels of fraudulent activity than what they saw a year ago. Some 80 per cent also felt fraud rates rise when the economy weakens.
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Chris Leahy, who is managing director of Kroll's Singapore office and oversees work in South-east Asia, pointed out that the spike isn't necessarily always due to more people turning to white-collar crime. Rather, it may mean also that tough times have led to more fraud being uncovered. 'I think what we're seeing is fraud that's been going on for a long time coming to the surface, because it's been far more difficult lately, given the receding economic tide, to hide it.'
Other fraud investigation units based in Singapore echoed his view. Lawrance Lai, executive director of fraud investigation and dispute services at Ernst & Young Risk Advisory Services, said that they had seen an increase in fraud-related work as 'what may have been hidden previously began to surface'.
'Many of the frauds reported have been occurring for years; the downturn creates cash flow difficulties and a restrictive credit environment, making it increasingly difficult to disguise missing funds,' noted Bob Yap, head of forensic at KPMG in Singapore.
On top of this, greater financial strain on both corporates and individuals provide further motivation and opportunities for new fraud to be committed.
It is bad enough that companies now face greater risk of fraud.
It is worse if they hold assets and investments in jurisdictions where litigation might not necessarily yield an enforceable judgment, which could magnify losses.
Said Kroll's Mr Leahy: 'We do a lot of work around disputes. If the counterparty has been defrauding creditors, or there is evidence of forgery - these could be used as evidence in the court of law to get a judgment you can enforce in a normal jurisdiction. But in jurisdictions where this is not the case, litigation could be pointless in the long-term and may not be the best use of management time and shareholder funds.'
'So we try to work towards a commercial solution. We obtain commercial intelligence for our clients, strengthen their hand, and aid their negotiation of a deal,' said Mr Leahy.
There has also been increased demand for what industry players call 'pre-fraud services'.
Mr Leahy said that companies seeking to embark on fresh takeovers or acquisitions for instance, want to be doubly careful about who they sign a contract with. Investigations into 'soft' matters such as the other party's commercial or political links, are useful and could help avoid startling discoveries of fraud post-deal, he explained.
KPMG's Mr Yap, too, said: 'Our clients are increasingly recognising that they are vulnerable to fraud risk and are looking to put proactive fraud risk management measures in place to carry them through the recession and beyond, hopefully, unscathed.
The investigative work that organisations such as Kroll does is often combined with strategic communications campaigns staged to engage stakeholders and put pressure on the other party and to support litigation work, said Richard Barton, managing director Asia ex-Japan of financial communications consultancy Kreab Gavin Anderson, which is now partnering Kroll for- such cases.
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