REPOST: Wanted: white-collar crime fighters

At present, there is a huge demand for investigators specializing in finding and exposing white-collar criminals. Gayle Bryant of The Age writes about the rising demand for corporate crime fighters as the prevalence for white-collar crime increases.

Breach of trust: Research shows white-collar criminals are frequently highly placed, experienced staff members.
Image source: theage.com.au

The incidence of white-collar crime is on the rise and as schemes become increasingly sophisticated, companies need to adopt more stringent controls to prevent themselves from becoming victims.

Traditional white-collar crimes include embezzlement, bribery, insider trading, money laundering and accounting fraud. Financial services firm KPMG publishes a bi-annual report into fraud, bribery and corruption and in its most recent survey - released in 2012 - it found $373 million had been stolen over the previous two years in Australia and New Zealand. But figures around white-collar crime vary widely, largely because much of it goes unreported, especially among smaller businesses.

University of NSW professor Clinton Free teaches and researches in the area of fraud and corporate governance. He says asset misappropriation is the most common of the white-collar crimes but the least costly to the organisation. "But financial statement crime, where the incidences are small, is the most costly," he says.

Free says white-collar crimes are very difficult to detect and can take up to three years to investigate. "They occur for different reasons," he says. "Within small to medium businesses, you find that they just haven't got the right internal controls, such as separation of duties, and this opens up opportunities for fraudulent behaviour."

Fraud squad: coporate crime expert Professor Clinton Free of the University of New South Wales.

Fraud squad: coporate crime expert Professor Clinton Free of the University of New South Wales.
Image source: theage.com.au

Within large organisations, he says, crimes often depend on collusion among senior employees and this makes them difficult to uncover.

Free warns against relying on standard audit procedures. "Audits are predictable," he says. "And auditors are not experienced in detecting fraud so it can be easy to work outside the parameters of an audit to keep a fraud undetected.''

Generally, financial offences only come to light through whistleblowers, Free says.

"Crimes get found out when someone in an organisation provides a tip-off or calls a fraud "Crimes get found out when someone in an organisation provides a tip-off or calls a fraud hotline," he says. "This is actually the most effective way of discovering fraud."

But there are tools businesses can use to deter criminally inclined employees. Free says that, as the crimes within SMEs are usually unsophisticated - for example, people transferring company money into their own accounts - internal controls are the easiest form of pre-emption.

"This could involve segregating duties, so that a person who is receiving money is different to the one who is recording it. Jobs can be rotated so no one person is continuously responsible for the same role. And surprise audits that are dedicated to fraud detection should be held," Free says.

But these measures have costs, whether in time or training, and lacking resources, SMEs tend to let them slide. Free says this is a mistake. He says research into white-collar crime shows that it is most often committed by highly-placed, experienced staff members.

"They are not people who have been there for five minutes," he says. "The frauds being conducted are by trusted personnel and you find that in the SME sector, people are more trusting of their employees. So, while putting in controls has costs, so does blind faith.''

In larger companies, fraudulent schemes tend to be more sophisticated and difficult to unpick, especially when they involve different jurisdictions. ''The two entities that are set up to fight this type of crime, ASIC and the Australian Federal Police, have constraints and the complexity makes it difficult to investigate,'' Free says. ''They have limited resources and any prosecutions depend on the quality of the investigation.'' ''

Beyond standard embezzlement, organisations need to be aware of the emerging threat posed by cyber crime, data theft and identity fraud.

KPMG director of forensic technology Stan Gallo says theft of intellectual property (IP) is a growth area. ''Employees might leave a company and start their own business or go to a competitor's and they take tranches of IP,'' he says. ''They just copy it to a thumb drive or save it in the cloud. It's easy for them to do because they've always had access to this information.''

Gallo says data-related crimes are a concern because of the value of the data. ''Management can't be complacent. If technology needs change, for example, if employees are given tablets, then management need to rethink policies on access to information. The line between what is private and what is business becomes blurred when people start using the same mobile phones and tablets at work and home.''

Working to defeat white-collar crime is garnering more attention around the world. For example, the US-based Association of Certified Fraud Examiners is the largest anti-fraud body in the world, with 70,000 members.

Gallo says the growing awareness among companies is good news. ''Organisations are seeing the ramifications of ignoring white-collar crime, especially around IP theft,'' he says. ''This is bringing it out of the IT department and to the attention of management and board executives so company-wide decisions can be made. It's a recognition that [it's] more than just an IT issue.''

Thomas Anthony Zampetti has been a Marine, a New Jersey State Trooper, and a private detective.  Visit this Twitter page for more updates on the private investigator career.