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Local News>J'can firms ignoring employee fraud - theft a $16-billion problem for listed companiesRichard Deane - Business Writer |
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Jamaican companies lose billions of dollars annually from employee fraud, but managers largely remain lackadaisical in addressing the problem, according to a specialist who advises corporations on how to curb such theft.
"We have done fraud risk and control reviews and highlighted areas for investigation to management and we have found instances when management is laid back," said Carolyn Bell, senior manager and a fraud examiner at PricewaterhouseCoopers Jamaica.
"As far as they are concerned, no fraud is taking place and they move on," Bell told the Financial Gleaner in the margins at a seminar on risk management solutions hosted by Pricewaterhouse at The Jamaica Pegasus hotel last week.
No Estimates for JA
Globally, it is estimated that six per cent of the revenue of corporations is lost to fraud annually, but there are no clear estimates for Jamaica, where analysts like Bell believe that the problem is serious and under-reported.
Still, those on the stock market, assuming the standard 6.0 per cent loss applies, are losing upwards of $16 billion annually based on a Financial Gleaner tabulation of the turnover reported by listed companies in 2006.
The tally of revenues was about $271 billion.
The experts also say the losses are even more pronounced at the bottom line, wiping out as much as 20 per cent of net profit.
The anecdotal evidence suggests that the preferred remedy of firms when they discover or suspect fraud at the lower level of the organisation is to name and shame the persons, but stop short of seeking criminal indictments against them.
Newspaper Ads
The method is usually a newspaper advertisement announcing that an individual is no longer employed to the company and, therefore, not authorised to commit business on its behalf.
But the experts say that this does not go far enough and hardly shields the firm from this form of theft. The better method, they argue, is to implement systems to prevent fraud in the first place and to immediately bring it to light when it happens.
Indeed, that was substantially the message that her American colleague Jonny Frank, a Pricewaterhouse partner whose 30 year career has spanned the prevention and detection of fraud, corruption and other misconduct, attempted to convey in his presentation titled 'Towards a Fraud Proof Environment' delivered at the same seminar.
"The common mistake that they make is not having anti-fraud programmes," Bell said of Jamaican firms.
"So there is nobody in the organisation who I call a fraud champion, who has responsibility for basically being always on the lookout for fraud."
According to Bell, two types of fraud are common in Jamaica: the misappropriation of assets, and financial reporting fraud.
Dormant Accounts Targeted
The former, she said, is now the more widespread because of the work of auditors that has served to curb the latter.
Bell said that the financial services sector in particular suffers from the misappropriation of assets, usually with the dormant accounts of clients targeted by rogue employees.
While financial companies are doing a better job of monitoring such accounts, she said, their efforts remain largely inadequate.
"A lot of the financial services companies have been putting in place controls over dormant accounts, because they recognise that there is a high risk of fraud," she said.
"But in a number of instances you will find that the systems that they have in place are not adequate and the reports that they can get from the systems are not adequate."
She urged corporate Jamaica to be more vigilant against fraud.
"Don't be complacent," she said. "When you become complacent that is exactly what any fraudster in your organisation wants."
richard.deane@gleanerjm.com