Fraud and Corruption – Sack the CFO!

Unfortunately, fraud and corruption are common in the business world, including in many large and well-known firms, as well as in governments the world over. Literally every day you could find a new story breaking that highlights an event of that nature, whether it is thousands of pounds, dollars or euros or millions involved. 

Issues related to ‘buying’, in its widest sense, probably represent the single biggest category of fraud and corruption globally. It is not hard to see why. When we consider fraud, it is clear that criminals trying to make money need to focus on where that money is. And buying (procurement) transactions account for most of the major spend areas for businesses and government bodies.

There are alternative ways you might look to extract money illegally or improperly from corporations, such as blackmail, or banking and investment frauds. There is some non-buying-related fraud committed by employees – we’ve seen examples of senior executives putting through pay rises for themselves that weren’t properly approved, for instance. But buying from third party suppliers accounts for trillions of dollars’ worth of trade annually around the world, so it is not surprising to see a whole range of fraud and corruption cases based around those processes.

Some of the low-level frauds are almost comical. The UK NHS suffered from a senior manager who extracted money by creating false suppliers, in order to fund her own activities as a horse breeder. The need to purchase expensive horse semen was a reason quoted in court to “justify” her criminal action.

However, without wishing to sound too sanctimonious, we do need to remember that there really are no victimless crimes, even in the seemingly light-hearted examples we see.  Taxpayers lose out when it comes to fraud related to government bodies, like the horse-related one. Even if the losses are covered by insurance for firms that are the victims, then insurance premiums will rise, or insurance-firm shareholders will take a hit. Someone always loses when a fraudster gains.

Perhaps the most annoying fact is that most buying-related fraud and corruption could be stopped by organisations taking a few relatively straightforward steps. Or where it can’t be easily stopped, and we’re talking about relatively minor frauds such as misuse of company credit cards, then it could be detected quickly.

Yet too often, the right processes aren’t in place, and we are left with a CFO after the event whining that “it was a very sophisticated fraud”. In 90% of cases, it wasn’t, the fraudsters simply exploited obvious vulnerabilities, and the CFO should be fired on the spot. If that happened a bit more regularly, we would see far fewer buying related frauds, that’s for sure!