The Hidden Cost of Fraud

A multinational company recruited a new superstar to bring in fresh ideas to its Management Training Schemes.

The new person immediately brought in some purportedly world renowned management consultants. In order to pay these consultants, it was necessary to displace (or make redundant) some of the employees in the training department.

It was subsequently discovered that the consultants (which actually comprised 3 companies, all sharing the same office) were low-paid sub-contractors working out of a remote farmhouse. At least 80% of the $2 million invoicing was fictitious and the consultant had paid the new internal training manager’s divorce settlement as a reward for his co-operation. Worse still, he had been involved in a similar scheme in his previous job.

In a post-mortem, it was estimated that at least 200 other senior managers had the same opportunity to abuse their budgets without this being detected by the routine internal controls.

Given the speed at which business is done, and the fact that decisions often have to be taken ‘on the spot’, budgetary control is not sufficient to prevent misuse of organisational funds. The average time taken by a manager to check an invoice, cheque or payment instruction prior to approving it is about 15 – 45 seconds, if he or she believes that someone else has previously looked at it and given it the OK. Yet, signatures and segregation of duties continue to be one of the main anti-fraud controls for many organisations.

Disclosures in the Fraud-i™ reporting module, as well as during "Understand the Risks" workshops using the Fraud-i™ tool have helped reveal a great deal of sensitive information regarding malpractice and unethical behaviour within organisations.

The results of these findings remain confidential and anonymous.