Every business list down its strategy to move forward and for that it gears up its executives by providing them some agreed targets which eventually become their performance indicators and based on these targets, these executives would further drill down the same to ensure these TARGETS are actually achieved.

There are number of reported/ investigated cases which reveals this fact that meeting target could become one of the most predictable FRAUD which possibly be executed by its own employees either intentionally or by pressure to meet such targets.

Who can be FRAUDSTER in this?

Essentially the employees who has got such rigid targets which directly affect their monetary payments e.g. target based incentives, bonus etc would end up doing such FRAUDS as they would be in a better position to commit  such FRAUDS as they are within the system and knows all potential weaknesses of the system that they follow in the Organization.

Examples?

Were Wells Fargo Employees Pressured to Commit Fraud?- When pressure to meet targets ends in a wide-spread scandal

FACTS:  There are plenty of customers asking this very question over Wells Fargo’s creation of millions of unauthorized bank and credit card accounts.

These fake accounts earned the bank unwarranted fees and allowed Wells Fargo employees to boost their sales figures and make more money.

It’s a classic case of pressure to make sales goals!

Source: https://www.whistleblowersecurity.com/were-wells-fargo-employees-pressured-to-commit-fraud/

Toshiba’s Accounting Scandal

FACTS:  Investigators found direct evidence of inappropriate accounting practices and overstated profits in multiple Toshiba business units, including the visual products unit, the PC unit and the semiconductor unit. The accounting misconduct began under CEO Atsutoshi Nishida in 2008 amid a global financial crisis that cut deeply into Toshiba’s profitability. It continued unabated under the next CEO, Norio Sasaki, and eventually ended in scandal under Tanaka.

Source: http://www.investopedia.com/articles/investing/081315/toshibas-accounting-scandal-how-it-happened.asp 

 Fraud Triangle?

In order to find motives and facts about each FRAUD that has happened, it usually relates with FRAUD TRIANGLE in which a FRAUDSTER would have a relation with an OPPORTUNITY, PRESSURE & RATIONALISATION or a combination of all.

In the employees scenario where certain targets are being forced on and then an employee look for all possible ways to achieve it, however an employee would try to rationalize such kind of FRAUDS being a part of his work to achieve these management decided targets and hence feels pressure to go for committing such crimes..

Sometimes it leads with an opportunity for an employee to commit such FRAUDS being an access of useful information while working within an Organization.

fraud anonymous hacker cheating clipart sticker

How to mitigate/ detect such FRAUDS which happens due to pressure?

1) The ACFE’s 2014 Report to the Nations on Occupational Fraud and Abuse points out that in 26.4 percent of financial statement fraud cases and 11 percent of corruption cases, excessive pressure from within the organization was a motivation to commit fraud ,

2) Whenever transition of an employee happens, it is comparatively greater chance committing such crimes to cover up the carried over duties and an opportunity to rationalize all past facts,

3) Tone of the top management would surely define how prone the risk of FRAUDs committing by an employee in order to sustain in the Organization,

4) Rotation of work duties should be ensured without any reservations and this should apply to both for PREPARER and REVIWER without any alternative course of action,

5) Frequent change of EXTERNAL AUDITOR would also be a key to detect such kind of prolonged FRAUDS,

6) Employee needs to be evaluated in detail at the time of its recruitment process, hence a physical verification of its whereabouts should be evaluated to assess its integrity,

7) The analysis of targeted plans as agreed by the Management and its actual accomplishment should be properly discussed and if there are some “perfectly met” targets exists then one can find this as a start point for investigating such pressure resulted FRAUDS,

8) External Auditor should also change its internal staff team frequently to ensure that any collusion would detect early, and at the same time the Management should also insist to External Auditor to change its ground team frequently,

9) All abusive or non-commercial words if used while communicating through email or verbally in office should be monitored with the help of IT team and hence Management can create a chain of such records to identify any potential FRAUDS that may occur,

10) KPI should be partly dependent on financial performance and if it does than a proper rationalization should be established and communicated to the staff to avoid feeling any such pressures,

11) Many more…..

Author is a Certified Forensic Auditor and passionate about sharing knowledge/ experiences writing articles. He can be reached at agrawal.anuj@icai.org  or Whatsapp 9634706933.

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2 Comments

  1. rm says:

    why forensic audit techniques and reporting standards not made way into the statutory audit report under company act. there is only general clause on errors and frauds in audit report

    it may be necessary for corporate’s to have internal audit covered by forensic audit techniques to sustain in e-commerce as over a period entire documentation will be paperless/system based.

    point 3 and 9 above – prone to risk of fraud- any specific audit process/techniques to detect

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