White Collar Crime in a Time of Financial Uncertainty

Economic crime tends to surge during and following a recession or period of financial uncertainty. A crime committed by employees in the course of their employment is defined as “white collar” crime. Such crimes include corporate fraud, bribery, Ponzi schemes, embezzlement, cybercrime and money laundering. The list could go on.

What are the red flags and why do individuals engage in such self-destructive misbehaviour?

There are several behaviours that serve as red flags displayed by perpetrators of fraud. The two most common traits are a tendency to live beyond one’s means, and a struggle with financial difficulties. Other red flags might include irritability or defensiveness, past legal problems, refusal to take vacation and complaining about inadequate pay.

Individuals have various degrees of tolerance towards conscientious and ethical behaviour. Certain individuals succumb to temptations and compromise their ethical values. Rarely, is there a direct mandate to break the law. Stealing from a large company, for instance, can seem appealing where the employee only sees a corporate entity so there is no guilt of hurting “a person”. Many embezzlers may think, “I am taking a loan and will put the money back later”, causing no long-term harm, no-one loses out in the long-run, so it’s “not really” a crime.

Generally speaking, older professionals or people who often occupy positions with authority or have autonomy over specific processing tasks, and are therefore trusted to be given more access to company resources, are most likely to have the opportunity to commit white collar crime.

Money laundering

Falling foul of money-laundering regulations may also be more common during periods of economic fragility. A company’s cash resources may be scarce at the moment, however, it is important that the appropriate checks are followed when accepting funds from both new and existing clients and that there are no deviations from the company’s normal money laundering protocols for accepting cash and/or electronic payments.

Safeguards

Some of the more obvious safeguards that should be implemented to reduce the risk of fraud/embezzlement, as well as identification of errors, involve breaking down processes so that no single person has complete control of a transaction:

• Segregation of duties – define policies and procedures for staff hierarchy;
• Define access and approval systems for computerised systems;
• Monitoring, reconciliation and control for payments and receipts;
• Query staff working irregular hours beyond their standard working pattern; and
• Ensure employees take their annual leave when they are supposed to.

Although segregation of duties improves security, breaking tasks down into separate components can negatively impact business efficiency and increase costs and staffing requirements. For that reason, most companies apply segregation to only the most vulnerable and the most task orientated elements of the business, such as invoicing, cash collection and credit control.

Summary

During a period of economic downturn and financial uncertainty, there is a likelihood that small frauds may occur throughout many businesses.

It is therefore critical that owners and directors of businesses are vigilant and are mindful of the warning signs of fraudulent conduct and the risk that systems may be susceptible to manipulation.