'They are going to get you'

In 2003, fraud cost this country close to US$347 million, and that’s not counting the amount that is being “washed” or laundered through your company. According to Canadian forensic fraud expert, Derek Rostant, who was hired in the National Flour Mills (NFM) rice scandal, most of the fraud in Trinidad and Tobago was done through kickbacks from big projects in both the public and private sector. “They are the most difficult to uncover,” he told accountants and auditors attending an ACCA forensic accounting seminar at the Crowne Plaza last week and warned that most companies were unprepared to deal with fraud and will probably lose millions before it is discovered.

In TT, he said too that most of the fraud was in procurement contracts and secret commissions. What’s worse is that the rate of growth of organised crime in legitimate businesses is  getting “scary” and members are using legitimate businesses to launder their money, he said. “That slick executive, the one with the MBA and ACCA,  that you’re eyeing for promotion might just be using your company’s books and resources  to “wash” his money, he warned. “That’s because organised crime has taken  on the veneer of respectability.” Rostant’s figures from a 2002- 2003 study show that fraud and abuse cost US organisations more than US$400 billion annually which equates to about 3.9% GDP. Using that figure as a benchmark and extrapolating GDPs,  he said the figures for Barbados was about US$90 million while for Trinidad and Tobago it stood at about US$347 million.

Using several examples of how companies were conned, Rostant, a client service partner in KPMG and KPMG Forensic Inc, the forensic and investigative practice of KPMG in Canada,  said that the average organisation loses about 6% of its total annual revenue to fraud and abuse committed by its own employees. The average organisation loses more than $9 per day to fraud, he added. On organised crime though, he noted that this was coming in a new package : They are starting to put people on the inside of companies, people with brains, who are highly qualified and prepared to wait years before making a move. In the US, about US400 billion is being added to the amount of money that organised crime has to try and get rid off every year,” he told his audience.

“They must wash clean and try and legitimise it,” he said referring to the money. And to do so, he said they will don the suits and come in highly qualified  with the MBA’s and ACCA’s. “Organised crime is investing for the future,” he noted and warned, “They put people in and earn your trust.”   He cited the notorious motorcycle gang in Canada, Hell’s Angels, who are no longer the uncouth bunch, people knew them as. Groups like these are bringing respectability to organised crime, he said, thereby making it harder to sift out the bad guys. But organised crime was just the tip of the fraud iceberg.

“As long as people got the brains and motivation, they can circumvent any system of control,” he said. “They are smart people and they are going to do it to you.” “Professional people are the people you have to be on the lookout for,” he added, noting that all people had to do was get you to believe that they were acting in the best interests of your company. He had this word of advice for accountants and auditors at the seminar: “Never build internal controls around people, you are going to lose the treasury.”

The Fear Factor 
So what keep  most people hands out of the till ? The fear factor, says Rostant: Fear of getting caught, fear of losing family and the embarassment it would bring. Rostant  noted that 40% of all fraudsters never got caught, while 40% get quietly dealt with. He said though that managers and CEOs had to be careful not to “create the environment” for fraud and cited former GE CEO Jack Welch who fired the bottom 20% of his sales force, no matter what their production numbers were. This, he said, can force employees to cook the books. Kickbacks, he said, was one of the most difficult frauds to trace because the transaction was consumated outside the office. In cases like this, a company can ask to see bank accounts and statements. “Once your lifestyle is incompatible with income, you have a problem,” he said.