Issue link: https://read.dmtmag.com/i/378880
LEGAL LINE Robert W. McIntyre IDA Association Legal Counsel Continued on page 56 N O business is immune to any number of attacks from within, gener- ally referred to as 'Corporate Fraud'. ere is not a month that goes by in our fi rm where a new or old client is not faced with some form of this problem. Unfortunately, this disease knows no boundaries of nation or business and laws and possi- bility of prison are no deterrents. Literally hundreds of articles, manuals, training exercises, policies, procedures, rules, regulations and public arrests have defi ned, but have not even put a dent, in the problem. Why, for some very simple reasons: 1. Who are the most likely persons to commit fraud? ere is no 'type' of person; a 'second chancer' convicted felon in the factory or warehouse may be fundamentally honest, but the more educated head of purchasing with you for 20 years may be the master criminal. Persons who generally commit the fraud are those in positions of both trust and accountability, and indeed may be 'self- policed' in the very critical areas in which the fraud will occur. Every person usually involved in fraud, is worried about getting caught until they are successful for a period of time and then believes either they will not be caught, or they can put back what they have taken without serious consequences. ese person will o en be those with outsized life styles or big fi nancial pressures; family illness, education costs, bad Who do You REALLY Know? investments outside the company, gambling, substance abuse; or all of the above 2. What types of situations in general are ripe for fraud, is o en defi ned as the 'fraud triangle: Pressure: as mentioned above; and, it's always about the money. e most honest person with an unblemished record and high performance is just as susceptible as anyone. And, almost without exception, the 'fraud' is originally intended to be 'temporary' and in many instances, fanciful notions of 'putting in all back' may fi gure in to the picture. Pressure comes from many places, and is o en due to personal , not job issues…a high earning spouse loses his/ her job, education expenses, fi nancial reversals, drugs, alcohol, gambling, medical expenses or similar matters. Opportunity: again as mentioned above, it is always the person in trust and control that starts the process, and in some cases, enlists one or more confederates in other parts of the company, or outside to both share the operation and the ill-gotten gains. Rationalization: there are many reasons for this kind of situation; the pressures outside of the job, and in some instances, a form of 'revenge' for not getting that bonus, a commission, territory, line, or salary cut, a missed promotion, or some sort of 'reorganization' that leaves an employee slighted or disen- chanted. In any one or more of these mental exercises, what is fully known to be wrong and criminal, becomes 'OK' in light of self-perceived extenuating circumstances. 3. Real World Examples I sometimes joke about being a 'civil prosecutor' in corporate fraud cases, and this is because the conduct is just like, and in some instances is actually, criminal action. e same tactics used by law enforce- ment, excepting sometimes interrogating the actual suspects, are applied in investigation and litigation to stop and sometimes, recover the missing money or goods. e following are examples of the types of fraud projects we have worked on, in and out of our industry. a. e 'purchasing' fraud is type of fraud requires at least two players, the buyer and the seller. Company A is in the business of making and selling very expensive carbide cutting tool inserts. e account rep for Company B works out a deal where it 'sells' several hundred thousand dollars of product to Company A. e purchasing manager of A receives a phony invoice from B, that looks legiti- mate but no products. A pays B, but at a post offi ce box not B's address and B's rep deposits the checks in a 'company' account. I DA U N I V E R S A L S e p te m b e r - O c to b e r 2 0 1 4 11