“History books and pages of business journals are dotted with cases of companies that perpetrated frauds and have since ceased to exist. Ethics and transparency is important for sustainable business and enters into every aspect of it, such as, quality standards, honest payment terms for both customers and suppliers, staff relationships and tax returns to mention only a few. The scope of operations for which companies are expected to be ethical and transparent has increased manifold in recent years. CSR is one of the ways a company integrates social, environmental and economic concerns into their values, culture, decision making, strategy and operations in an ethical and accountable manner.”
Dealing with Corporate Fraud in CSR way:
Increased globalisation has strengthened the civil society and has become a powerful driver of collaborative global governance initiatives through high speed communication, information dissemination, and social networking which has empowered the constituency in pushing democracy, transparency and accountability in the government as well as in business. Social networking has facilitated large consumer boycott of companies that fail to meet public standards of corporate conduct. Media campaigns, consumer boycott, and other civil society initiatives require business to comply with high social and environmental standards. But good governance is important to realise greater transparency within the system and foster a path for strong and stable economic development.
Corporate Social Responsibility (CSR) is one of the ways a company integrates social, environmental and economic concerns into their values, culture, decision making, strategy and operations in an ethical and accountable manner. It is becoming relevant today as it helps corporations achieve a balance or integration of economic, environmental, and social imperatives.
It would be wrong to say that corporate frauds are new. The first Ponzi scheme was unraveled in the early 1900s. The most recent Ponzi scheme was that perpetrated by Bernard Madoff in 2008-09. While the underlying notion remains the same, what is different is the sophistication and of course the quantum of fraud. Much as it has always been, a weak economy simply distills out the frauds. A different way to think about it – and perhaps rightly so – is that during bad times people are more vulnerable to take steps that they would not, in the normal course.
History books and pages of business journals are dotted with cases of companies that perpetrated frauds and have since ceased to exist. Enron is a case in point. The truth is most of these companies have a rather deep impact on average people that have nothing to do with the fraud, for example, the public and investors at ‘Madoff Investment Securities’, who had invested their life savings in the company. When the company went bust, so did their futures. It has, therefore, become exceedingly important for policy makers and executives to address these issues. Passing of the Sarbanes Oxley Act was a direct result of some of these frauds in the early 2000’s.
What is corporate or occupational Fraud?
Corporate or occupational fraud and abuse are known by many other names, including internal fraud (described in greater detail below), employee fraud, employee theft, and embezzlement. The phrases “occupational fraud” or “internal fraud” are often used when discussing corporate fraud because they apply to a range of employee misconducts, while the other terms are a bit more restrictive. In a lay person’s terms, “corporate fraud” is when:
- An employee violates ones fiduciary duties towards the organisation
• Is done in secret and is concealed
• Is done for a direct or indirect benefit to the perpetrator
• It costs the organisation, its assets, revenue, or opportunities Fraud perpetrated involving collusion of two or more persons becomes more complex, involving schemes that are, at times, more difficult to detect. Such collusive fraud is essentially an agreement between two or more persons to defraud the victim(s) of their rights. It involves conspiracy or concert of action between two or more persons for fraudulent or deceitful purpose.
These legislations force companies to re-evaluate their controls and to implement fraud prevention, detection and response mechanisms.
[Information source: Deloitte Forensic India in collaboration with FICCI -Aditya Birla CSRCentre for Edxcellence]