WHY BUSINESSES ARE EXPOSED TO FRAUD

There are several reasons why businesses are exposed to frauds. These include the following under-discussed factors:

System Weaknesses
This serves as attractions and inducements to staff and outsiders to perpetrate frauds. If these weaknesses had been plugged probably fraudsters would have been discouraged from attempting to breach the system and perpetrate fraud.

Moral Hazard
The degree of moral degeneration in the society exposes business to fraud. Since the business is part of society and takes its staff from the society while also transacting businesses with its various “publics in the society” there is no way the society will be insulated from frauds flowing from the immoral tendencies characterizing society. Societal values are so truncated that nobody care how people get rich. All that is required is that riches should be flaunted even if it flows from fraudulent activities. This factor greatly motivates people to commit fraud.

Non-Congruence of Objectives
Where there is no congruence between the goals of the organization and its employees, this leads to the occurrence of self-serving tendencies of the part of the employees through which the assets of the organization can easily be converted to the detriment of organization. This is generally referred to as the Agency problem.


POOR QUALITY STAFF
Where the quality of staff is low, smarter outsiders can exploit this weakness to perpetrate fraud on the organization by sidetracking procedures and capitalizing on staff ignorance.

Collusion
One of the major sources of fraud is collusion. Even where outsiders are involved there are usually insider teams that would have released classified information that the outsider fraudsters will use.

POOR REMUNERATION
Where the remuneration is poor, especially where the organization is prosperous; it may be a fertile inducement to fraud (Take contract staffing in banks for example) enchanted workers look for ways of getting even with the organization. Every opportunity will therefore be sought to defraud the organization. Take the banking system for example some banks create avenues and scenarios for fraud to occur. These are those banks that still practice labour casualisation under the disguise of contract staffing. Some staff with degrees and professional qualifications are placed on salaries as meager as (N35, 000) Thirty five Thousand Naira per month under the caption of “contract staff”. These contract staff participates in handling transaction-involving hundreds of millions of Naira and yet is paid peanuts. Frustrated maligned and exploited, they will naturally be tempted to help themselves to some “largesse” whenever the “porosity” in the system permits. They will even seem to be justified in their actions taking into consideration the fact that they already feel exploited by the employers.

SHADY DEALS
Some entrepreneurs carry out shady businesses, carrying out such practices and transactions that could attract the authorities to close down their operation. These acts of “atrocious dealings” are usually carried out by staffs who know how much they make for their bosses, through these dubious and “under cover” business activities. The staff may thereafter decide to steal a fraction of the cake, daring his boss to raise and alarm, while threatening to expose the latter’s shady deals. Fraudsters in this category are usually “sent off’ amidst pomp and pageantry by their bosses who also give them fat severance pay packets as consideration for their keeping quiet and not blowing the whistle.

WEAK INTERNAL CONTROLS
Where internal control systems are weak, it provides and easy attraction for the perpetration of fraud. Internal control is weak where the basic controls and the discipline over basic controls are weak or totally absent. In this regards, it will be difficult if not impossible for assets to be safeguarded and funds to be safe. The organization will be on a roller coaster towards doom.

LIGHT PUNISHMENT FOR OFFENDERS
Fraud prospers where previous offenders are not punished or are allowed to get away with light punishment. This will make the pains of fraud to be much less than the gain.
Fraudsters may even find themselves in a position of influence in the society thus providing increased motivation for aspiring fraudsters.

POOR QUALITY AUDITS
Although the purpose of an audit is not to detect frauds, yet the proper deployment of appropriate audit techniques may as well reveal system inadequacies and fraud. Where the quality of audit is poor, fraud will be encouraged. This poor quality may even result from undue compromise between audit staff and management in an undue alliance to rip the company off its assets in a “rub my back, I rub yours” situation. Without the effective auditing as a caution, frauds may be on the increase.

POOR CAREER PATHS
Where staffs in an organization are stagnant in their position with no prospect of promotion, it affects their morale and they see themselves at a dead end. The scenario is worsened where the job is not pension able. In this regard, this employee stats to develop ideas about how to steal enough money to be able to set up their own businesses.

As aforesaid, it may be apt to describe fraud as a situation whereby one party unjustly deprive another party of what rightly belong to him and benefit from such unjustly, through falsification of facts, evidence, signature, documents or through impersonation. Apart from those factors mentioned previously, there are other favours that make people commit fraud. Some of these are as below considered.

PSYCHOLOGICAL FIXATON
Problems resulting from childhood disorder can lead to an ingrained prosperity to steal or commit fraud. When a child is being continually deprived of what is justly his, transferred aggression may make him take what does not belong to him whenever the opportunity presents itself. When the child grows with such habit, the result is psychological fixation to steal.

SOCIAL PRESSURE
Some people are under heavy social pressure. Due to the nature of the extended family system, they are always under financial pressure. Where care is not taken and such people are not well discipline, they can easily be tempted to commit fraud.

INSECURE OR DEPRIVED CHILDHOOD
In addition to the foregoing, insecure or deprived childhood creates a sort of “me-too” syndrome where by the deprived child will be trying as much as possible to live to the level of his rich friends whose parents could afford what his own parents could not afford. These urges to live up to expectation often create an inferiority complex syndrome that creates an insatiable appetite for material things. If the syndrome is not quickly corrected, at adulthood, it becomes a problem leading to the grabbing of everything “grabable” at whatever opportunity.

SOCIAL ENDORSEMENT OF FRAUD
At times, society encourages fraud. Honours are given to anybody who can donate heavily to religious and social functions. These huge donations are often received without the verification of the source of the money of the donor. People become social figures as long as they can parade big cars and wear expensive clothes nobody ask any questions.

This encourages people to attempt to get rich at all cost whether through fraud or not.

SOCIAL DEVIANTS
Some people are social deviants. They believe they are offended by the social system and they are sworn to taking revenge. They therefore believe that they must steal from society and make it through fraud.

NON ROTATION OF DUTIES
Where an officer has been on the same beat or desk for too long, he becomes a tin god who believes that he can do anything without any body being able bold or competent enough to challenge him. This makes him overconfident enough to perpetrate myriads of unauthorized acts, fraudulent ones inclusive. This is why rotations, transfers and sending staff on annual leave help in reducing fraud. Where an organization do not have such checks and balances, fraud is likely to be on the increase

FEAR OF OLD AGE
Some people resort to crime to be able to cater for lean times when they grow old. The fact that there is a clear absence of programmed for those that have reached old age and the tendencies of children nowadays to use their meager resources to cater for themselves first before remembering their old parents make people think twice about whether they will commit fraud or not. To make matters worse the nation does not have an efficient system of pension administration and most people are unnerved by the scenes of old pensioners languishing on queues in other to collect stipends paid as pensions. Some of these old pensioners often die on the line without being able to collect their pensions alive. Therefore what most people do is to steal as much as possible with a view to ensure that enough provisions have been made for the rainy day.

NATIONAL CAKE SYNDROME
Some people believe that committing fraud is akin to collecting their share of the national cake, especially where the organization where the fraud is committed against is a government establishment or agency. With a lot of people having stolen without being prosecuted and with a lot of practicing, retired and aspiring thieves in position of authority stealing from the government purse in considered normal and the practice in fast becoming and accepted norm.

BANDWAGON EFFECT
Where fraud is fast becoming a habit, it will be very hard to control. Fraud as part of a society’s value system can be very disturbing. But there is little the minority can do if the majority accepts fraud as away of life. Those part righteous minorities who are not of a strong mind may easily be persuaded to join the ranks of the burgeoning number of fraudsters and looters. If you cannot beat them, join them may become the slogan. At least in a lawless society it is aid that the laws abiding ones are the guilty ones.

LOW LEVEL OF PROTECTION FOR WHISTLE BLOWERS
Whistle blowers are always in danger, as they constitute a constant source of threat to fraudsters. Where the fraudsters are powerful individuals with excellent connections and a strong will to protect their loots and accomplices, such fraudster can result to taking harmful measures against actual and potential whistle blowers. Where blowers are willing to play their roles frauds will increase, as fraudsters will be having a field day without having the fear of being exposed.