Having carried out corporate fraud investigations as a forensic accountant for over twenty years, and provided expert accounting evidence in all manor of fraud and money laundering cases during that time, there is one single theme that runs through most assignments. That is the greed being exhibited by both the fraudster and the victim.
The fraud victim’s greed can push sense out the window, and cause suspicions to be ignored. A good example is the number of people who were acquiring buy-to let properties last decade, purchased from the glossy brochures of the property developers. Very often the fraud investigation revealed that the deal was done without the buyer ever seeing the property. There was no risk of course, properties always increase in value! The deposit was covered by the developer’s discount and the mortgage was arranged with a friendly broker over the phone. Later, when the property prices collapsed and the brokers, developers and surveyors are investigated for fraud, it was the purchaser that was sued for bankruptcy as their property (now well and truly in negative equity) was unable to service the loan.
But it is also the fraudster who is greedy, like the property fraud victim above who was looking for an easy way to become a millionaire landlord. Many of the culprits I have investigated are intelligent and otherwise decent sorts. They simply step over the line between sharp business practice and fraud in an attempt to earn greater profits. Sometimes, when an out and out fraud has been planned and executed, I wonder how well the perpetrator would have fared if running a legitimate business.
Normal business practice is to make money from others. You sell as high as you can and take as much credit as possible. The line between this and trading fraudulently is often indistinct, and very often disadvantaged parties will shout “fraud”. This can range from the selling of a correctly labelled (but empty) PlayStation box on Ebay to an unsuspecting customer ignorant of the fact that his bargain is too good to be true – to the selling of businesses by multinationals. This year we read of the Serious Fraud Office dropping its investigation into the $11.1 billion sale of Autonomy to Hewlett Packard.
How on earth can the SFO been investigating this in the first place. Surely a deal of such mammoth proportions will have suffered the due diligence process the the nth degree? One or more of the big accountancy firms will have spent months if not years reviewing the target business at huge expense before a sale ever took place. How could the wool be pulled over the acquirer’s eyes if they were not blinded by the thought of massive increases in economies of scale and hence profits. Does this not equate to greed and must there not be an element of caveat emptor even in a deal of this size?
When giving talks to groups of finance directors and business managers on the subject of fraud prevention I have always extolled the virtues of healthy suspicion. More frauds have been discovered that are committed by long serving staff or trusted family members than by any other group. Suspicion should be extended to all aspects of business dealing, such that any transaction is questioned (proportionally) before going ahead. This applies equally to individuals buying investment properties for their pension as it does to strategic acquisitions by global players.
It is natural for one party to try to maximize profits, so long as legitimate practices are used and hopefully a measure of morality applied. It may be that an absence of the latter is what stimulates the willingness to cross the line into committing fraud.