Top 10 Good Things About Fraud

(Fraud refers to Financial Fraud)


Exposing Fraud, Deters Fraud
One mistake management can make is to not let the fraud out into the light. When a fraud is swept under the rug, no one learns: not management, not the employees, and surely not the general public. Though some frauds are best kept with a tight lid, most need to be exposed so that every level of management is on the same page and can then keep key decision makers aware of how to deter the same fraud from occurring again. History will definitely repeat itself if individuals know what and how to overcome weakness in a Company’s internal controls.

Exposing a fraud is smart (see the statistic below on employees), as long as the Company changes how they conduct their business to help overcome future fraud from happening in that specific area.


An Experienced Auditor Can Detect & Expose
In a 1998 KPMG Fraud Survey of 5,000 U.S. companies (note: multiple responses given), 43% of the time the fraud was discovered by an Internal Auditor. As a result of a boom in fraudulent activity around the time of Enron and WorldCom, Auditors Internal and External to a Company have spent a great deal of time acquiring education and training so that they are aware of what to look for. The result, a reduction in securities fraud and white collar ‘cooking the books.’


Fraud Audits…Gives Assurance To Senior Management
Senior Management should have a better nights rest when they know that they have professionals continually searching for fraudulent activity. Enough said, Fraud Audits are highly recommended.


Forces Management To Take Action To Prevent The Big One
Management, do not waste time, Take Action, Take Action, Take action…Now! If you are willing to be at the helm when the big one occurs, you may find yourself extremely disappointed and even more serious, indicted. SOX is not an overlooked piece of legislation. Just research the fate of Bernard Ebbers of Worldcom who became their CEO before they went public in 1989 and remained until the Company fell apart years later.


Forces Management To Re-assess Internal Controls
Internal Controls are never perfect when they are initially put into place. Even if they were perfect, if your business or Company grows, the Company’s infrastructure will be constantly changing, therefore, warranting you to re-assess internal controls. Not re-assessing internal controls is like never changing your ATM card’s PIN. Eventually someone will figure out a loophole, one thing leads to the next and now your identity is stolen. Not re-assessing in a changing world…not the best move.


When The General Public Is Informed…A Company’s Greatest Weapon Is Informed
In the KPMG survey mentioned above, notification by employees accounted for 58% of all frauds discovered. When a fraud takes place, employees that are not involved have nothing to fear, they have only to gain if they are the ones that uncover or expose the fraud. In the Worldcom fraud, the Vice President of Internal Audit, Cynthia Cooper, was the whistleblower that went to the Audit Committee about the Company’s phony bookkeeping. Most may not know this but Eugene Morse was the Internal Auditor that uncovered the fraud. To note, Ms. Cooper receives in upwards of $25,000 per speaking event. I personally heard her speak at a college and thought of how amazing it was to see how much pressure there is on a person when the fraud was in the neighborhood of $3.8 billion. She explained that a few different times, people wondered if she should be held accountable to a degree because she was in the upper echelons of Company management.


Fraud Damage Is Difficult To Measure, Internal Controls Are Not
I once performed a fraud audit where I knew the perpetrator stole much more than I could prove, but also knew, ‘it’s not what I think, but what I can prove.’ Who really knows how much was stolen in that two-year period, the individual did, but as mentioned, it could not be proven or measured.

In contrast, internal controls can be measured because they are written down and documented thoroughly with plenty of time to prepare, test, measure, and re-measure.


Early Warning Sign For Stockholders
This point is self-explanatory. Stockholders generally have much to lose and less to gain from fraudulent activity in a Company but at least if they are well informed, they will be better equipped to make the decision to sell or continue to hold.


Makes You More Proactive, Not Reactive
Once a fraud takes place, who wants to see it’s ugly face again? I know of a Company that would literally wait until something bad would happen or the government forced them to make a change, before a change in policy occurred. Their reasoning? They didn’t want the upfront costs. Not being proactive, later cost the Company a high dollar figure and holds a record for the largest recorded fraud in a specific type of business. Though I will know mention the Company’s name, I can say it definitely taught me that history will repeat in the absence of proactive behavior.


“Catch Me If You Can” And Frank Abagnale
If you haven’t watched this movie, you may find it interesting and entertaining. The movie is based on a true story of a man named Frank Abagnale who committed various financial frauds. Mr. Abagnale is a living example of how fraud can be a good thing. Yes he was involved in illegal activity but he now has hundreds of references and clients (former and present) that have made him financially successful, as well as taught millions of people how you can turn fraud into a teaching and learning exercise.

Just do a search online of Mr. Abagnale and you will see how he has turned a fraud into a “Good Thing.”


About the Author:
Paul Gillett is an auditing consultant and author. If you would like more information on auditing solutions, click this link: audit solutions and post a comment or email:phgillett@hotmail.com. You may reprint this article electronically or as a hard copy as long as the author's resource box remains intact, with the active links included.