Analysis of an employee’s personal motivations behind fraudulent acts

July 2014  |  SPECIAL REPORT: WHITE-COLLAR CRIME

Financier Worldwide Magazine

July 2014 Issue

Personal gain is, and will always be, the usual suspect on the list of personal motivations that derail an individual. Employees engage in acts of fraud either for the sake of financial and professional advantage or to secure a business transaction. One scenario relating to personal gain is likely to occur when meeting targets results in a significant bonus or premium payment that would compensate the employee’s relatively modest salary, or when the targets set by her superiors are unrealistic or hard to attain. In the same line of reasoning, the employee may choose to commit fraud with the goal of receiving a promotion. This type of fraud might involve, for instance, the falsification of purchase orders or company records to invent sales which did not materialise in reality. In this way, the employee might obtain a bonus or promotion that she did not actually earn.

Employees may carry out acts of fraud, alone or with others, for a variety of other reasons. Fraudulent acts may occur with the aim of providing benefits to other individuals, such as friends or relatives doing business with the company where the employee is working. For instance, the employee may choose to purchase goods from an acquaintance’s firm rather than from a more advantageous alternative for the company.

The privilege of being a senior executive might also be an impetus for the individual. There are cases where high level managers engage in fraudulent acts because they believe that their actions cannot be questioned or investigated. A senior manager’s guidance and orders might also push an employee to commit fraud, deliberately or otherwise.

It is also possible for employees to commit fraud in the belief that he or she is doing something beneficial for the company, even without gaining a personal advantage. In this scenario, the employee may even be unaware that their acts are fraudulent. Often, the employee will instruct third parties to ‘speed up the process’, ‘to get the job done’ and to finalise the transaction as soon as possible.

This is where the importance of thorough compliance trainings emerges. Comprehensive compliance training, accessible at all levels, may prevent an employee from engaging in fraud by explaining which acts constitute fraud and by mapping out the consequences to create a deterrent and raise compliance awareness among employees. It is also recommended firms always put in place and apply a Code of Conduct to complement the local legislation being taught during the training sessions. To this end, it is highly recommended firms provide training as frequently as necessary, based on the company’s employment circulation.

In addition to compliance training, establishing robust internal procedures is another equally important step in preventing and investigating fraud within a company. Hiring a compliance officer is prudent, to demonstrate to employees that any suspicious acts might be investigated by the company. It is also advisable to establish a ‘hotline’ that would simplify procedures for employees to report misconduct, and to put in place a functioning whistleblower protection and reward mechanism to encourage employees to reveal any irregularities they encounter. The Code of Conduct should clearly indicate which individual to contact when an irregularity is detected. It is also important that the company pursues all reported allegations. The compliance officer or team should approach all allegations with the utmost diligence, since a relatively insignificant allegation could quickly snowball and reveal more irregularities yet to be investigated.

Fraud may also be prevented by other tools such as establishing fully functioning and solid workflow systems and red flag mechanisms. The presence of a ‘checks and balances’ system where an employee’s acts are controlled or approved by another employee might at least decrease the likelihood of fraud. Moreover, timely and diligent controls – for instance at financial management level – might also be an instrument for early diagnosis of fraud. Another prevention tool is the use of technology, such as software that cannot be cheated and will not ‘unlock’ until a number of prerequisites are completed, would have a huge influence on the ratio of fraud. For instance, dispatching a product might be prohibited unless certain documentation is submitted to the software or a certain transaction is approved by another employee. In addition, setting realistic targets for employees would reduce the risk of fraud, since meeting targets is one of the most frequent motivations for committing fraudulent acts.

No matter how much training is given to employees, there may always be some level of misconduct in the company. Therefore, prevention mechanisms and detection tools should receive equal investment to avoid undesired consequences.

 

Gönenç Gürkaynak is the managing partner, Ç. Olgu Kama is a partner and Begüm Nişli is an associate at ELIG, Attorneys-at-Law. Mr Gürkaynak can be contacted on +90 212 327 17 24 or by email: gonenc.gurkaynak@elig.com. Ms Kama can be contacted on +90 212 327 17 24 or by email: olgu.kama@elig.com. Ms Nişli can be contacted on +90 212 327 17 24 or by email: begum.nisli@elig.com.

© Financier Worldwide

BY

Gönenç Gürkaynak, Ç. Olgu Kama and Begüm Nişli

ELIG, Attorneys-at-Law

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