CORPORATE FRAUD

CORPORATE FRAUD

Clinton Free

If we’re serious about addressing fraud as a social problem we can't ignore the offender's voice.
Organisational fraud costs the global economy more than $3 trillion each year. Clinton Free is helping businesses identify vulnerabilities to stop fraudulent behaviour before it begins.

The economic toll of fraud, where people try to gain a financial advantage through deception, is staggering. 

The Association of Certified Fraud Examiners in the US estimates that a typical organisation loses 5% of its total revenue to fraud each year. If applied to the estimated Gross World Product, this translates to potential losses in excess of $3 trillion annually. 

The most recent Australian Institute of Criminology study, conducted in 2005, put the cost of fraud in Australia at $8.5 billion.

“This is a huge economic phenomenon, and a vicious social problem around the world,” says Professor Clinton Free, director of the MBA program at UNSW’s Australian Graduate School of Management.  

“Given the scale, if we can do something that helps firms address this problem, even if there’s only a small incremental improvement, there could be enormous social and economic impacts.”

The majority of fraud cases involve asset misappropriation, where employees abuse their positions to steal from employers, clients or suppliers.

“We’ve seen a lot of efficiency-led attempts to reduce costs within organisations, which has reduced conventional internal controls around separation of duties and authorisations, and controls around cash,” says Free. “This de-layering has probably acted to increase the opportunity for fraud in many organisations.”

Free is trying to help organisations build more fraud resilient control systems, to identify areas of weakness that have been exploited, and to design new training programs that discourage fraudulent behaviour.

And he’s getting his information straight from the source, talking to people convicted of fraud.   

"If we’re serious about addressing fraud as a social problem we can't ignore the offender's voice," he says.  

In 2010, just after the Global Financial Crisis, Free was allowed access to three US prisons and interviewed more than 60 felons convicted of fraudulent offences.

One important takeaway from this work was that most fraud involves people working in teams, which seem to run counter to the popular media narrative of the lone wolf fraudster, he says.

“In nearly every instance, the people would talk about co-offenders who had helped them design the criminal act, carry it out, or conceal it.”

Free says this collusion can arise for several reasons, but is often about increasing the reward and minimising risk. 

Free is now planning to interview criminals in Australia, working alongside a forensic accounting firm McGrathNicol, to understand more about how these individuals committed their crimes, and how they rationalised their behaviour throughout the process. 

“This is an imprecise science, but understanding how they justify their behaviour internally is really core to understanding the drivers of fraud,” he says. 

“If we’re going to take this problem seriously, we have to understand this thing better than we currently do.”