Who Commits Fraud, And Why?

Before addressing fraud risk factors we must clearly understand the key factors that contribute to fraudulent acts. There are three fundamental factors that contribute to perpetration of fraud, they are: Opportunity, Pressure, and Rationalities, each is discussed in detail below:

Opportunities for fraud by people working with NUPRP

Opportunities to commit fraudulent acts may arise from weaknesses in our internal control systems, from governance, or from risk management systems. Unfortunately, these opportunities are provided by our colleagues who may be with our team, either in the field or at Headquarters, who might misuse their position of trust to perpetrate fraud and corrupt practices. Identifying and managing those people should be our priority. There are numerous ways how opportunities for fraud may arise. It is almost impossible to prevent all opportunities because our working environment is highly complex, and due to the resource constraints, which prevents us doing so. But lets look at some of the instances given below:

a) Immoral practice of higher management and mid-management

• Management hold a position of trust, and so they have less opportunities to be caught. If their integrity level is low then this will eventually lead them to commit corruption

• The careless attitudes of management towards organizational policies and procedures, and their violation

• A weak ethical culture (the tone set up those at the top is poor)

• When management demonstrates unacceptable behaviour it sets an example, and the opportunists may copy their inappropriate behaviours.

b) Flaws in the Hiring Process

• If employees such as Town Managers, or field experts, are recruited through lobbying by senior management, or perhaps some political person, they will be difficult to manage. Such a practice will break the chain of command, and this leads to opportunities for corruption to take place

• If the Community Facilitator or Community Officer is recruited through taking bribes, then those people will try to recover them somehow, through providing opportunities for corruption

c) Monitoring and Oversight

• Poor and ineffective review, monitoring and oversight may allow Community leaders to divert funds by inflating prices, submitting fake invoices, or showing non-existent beneficiaries

• Persons playing oversight roles may demand bribes to turn a blind eye when they should be reporting fraudulent payments, or committing other financial irregularities, that they may have discovered

• Unethical requests, for example, of someone demanded a share of the SEF grant from beneficiaries, or if they demanded some share of a community contract value from SIF. This could be committed by a community facilitator, community organizer, or their superiors, and may thus push the community leaders into a position where they were involved in corrupt practices.

d) Others

• Poor training and orientation of staff about anti-fraud measures

• Lack awareness about, and of appropriate, disciplinary measures

• Ignorance of supervisors of anti-corruption policies

• No segregation of duties meaning people are left to work on their own, leaving corrupt acts to go unnoticed

• Beneficiaries might use fraudulent means to acquire benefits that they don’t deserve through the influence of dishonest employees

• Vendors may be associated with the dishonest employees (at any level) and use their connections to commit fraud. This is called kick backs or bid rigging.

Pressures that may lead people of NUPRP to commit fraud

An individual may begin to think that fraud or corruption are necessary if they face financial problems that he is unable to solve through legitimate means, or due to unmanageable work pressure, both financial or non-financial. Such pressures may come from internal or external sources. For whatever the circumstances may be, this may lead to committing fraudulent acts. Possible sources of pressure are illustrated below through a few examples:

• Management is ultimately responsible for success or failure, so, they are pressured to meet budgets or to achieve activity targets. In order to achieve them they may compromise their ethics and moral decisions, resulting in corruption or fraud, or in pushing lower levels of staff members to do so.

• Given Management’s position of power and authority they may apply pressure to lower level staff to perpetrate fraud on their behalf by intimidation or by offering financial benefit. This may create opportunity for them to commit fraud, and also create an environment that encourages employees to act fraudulently

• A local government counterpart may abuse their position of power to pressure staff or the community to influence the award of a grant or contract, process a payment invoice or sign an approval;

• A supervisor may induce or pressure a staff member to sign off on low quality work or to fake an invoice

• Some external sources of pressure might be the following: a severe financial crisis, people living beyond their means, drug addiction or gambling, or perhaps there is excessive family or peer pressure.

Self-rationalization

Self-rationalizing an act of corruption is when someone justifies a fraudulent act to himself or herself. For example, if an employee thinks that by being in a position of trust, that they should be able to use their position to make financial gain. Or if a community leader believes they’re entitled to benefits because he or she thinks they are deserving. These are just some examples how people may rationalize the diversion of funds from the project. If pressure or need are high, and the opportunity presents itself, and their honesty is low, then fraud is bound to occur. Inversely, when honesty levels are high, the lower the level of self-rationalizing, and the less likely one is to commit fraud.

Recommendations

Managers lead by example

Managers at all levels have to lead by example, they should possess high levels of honesty and integrity, comply with policies, be punctual, and sensitive to fraud and corruption issues so that subordinates will not take advantage of their non-compliance, or their dishonest attitude. Managers should also adopt an open-door policy about whistle-blowers, and take action when necessary.

Good systems need to be in place, and stay in place

Ensuring that hiring processes include rigorous background checks, and allocating sufficient time during interviews to ask about ethics, are both ways in which hiring processes can screen some unwelcome staff. Hiring policies and procedures should also be strictly adhered to, and the criteria to selection Community Officer and Facilitator positions should be well defined in advance so that only the most deserving and honest staff can be part of the team. Once on the team training and orientation are necessary to ensure that everyone understands acceptable and unacceptable behaviour, and that people know what to do to combat fraud and corruption. Knowing one’s roles and responsibilities is thus essential.

When necessary, take action

It is important to set an example and apply disciplinary measures. When a dishonest employee has been caught its important to take disciplinary action to teach others what happens when such acts are committed and caught. It won’t be worth it.

The best course of action is preventive action

Most cases of corruption and fraud can be prevented through proper preventive action. Monitoring, supervision and independent check system at different tier should be ensured so that every personnel feel that they are being watched.

Touhidur Rahman Khan is the Internal Audit Coordinator of LIUPCP/NUPRP. He can be contacted over email: touhidur.khan@undp.org