Corporate fraud relates to a set of activities carried out by an individual or a group of individuals in an illegal or dishonest manner. Its motive is usually to benefit the perpetrators at the expense of others. Corporate fraud is not just limited to workers stated position but also marked by their personal economic effect in the organization, fellow employees and stakeholders (Cliff & Wall-Parker, 2017) . Corporate fraud is quite difficult to inhibit and prosecute. Many companies therefore resort to instituting effective policies, installing physical security systems and creating check and balances systems to limit fraud cases. Due to its corporate nature, it’s also referred to as the white collar crime. Despite being carried out in numerous ways, corporate fraud is generally performed to take advantage of corporate confidential information or gain access to sensitive company assets. These assets may be leveraged for profits thus benefiting the perpetrators.
Corporate fraud in most cases is carried out to make the companies attractive to investors. Other types of fraud are aimed at misrepresenting or simply disguising a product or service. Management hides products defects and consequential effects. Instead of working to refurbish, repair and redesign the products, the perpetrators disguise the product’s weaknesses in a bid to increase sales and acceptance in the market (Cliff & Wall-Parker, 2017). Enron Company fell due to deceptive accounting malpractices. They widely utilized loopholes and other disguising strategies to hide debts amounting to billions of dollars and failures from the general public. They went ahead to convince their auditors to persist with the lies and destroy some of the financial documents. In 1976, figures attributable to white collar crimes amounted to approximately $250 billion annually. Recent estimates declare financial losses amounting between $300 billion and $600 billion annually. PricewaterhouseCoopers estimates about 36% of all business and 25% of parties in the household category are victims to the devastating corporate fraud schemes. Traditional crimes such as robbery and violence only amount to about 1.1% which is smaller compared to white collar crime. Judging by its amplifying statistics, white collar crime is a devastating issue that clearly needs to be addressed (Cliff & Wall-Parker, 2017).
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Apart from stocks trade, health care and insurance has also taken a toll in corporate fraud cases. The escalating medical care costs have increased health care insurance. The United States uses about $2.7 trillion dollars annually which is approximately 17% of the total Gross Domestic Product (GDP) (Cliff & Wall-Parker, 2017). In a study by Andrew Hackbarth from the RAND Corporation and Donald Berwick from Centers for Medicare in 2012 showed that about $98 billion Medicare funding was embezzled through corporate fraud annually. For the whole health system, the embezzled amounts totaled to about $172 billion per year. Identity theft is another type of corporate fraud. According to 2015 statistics on Identity Fraud assessed by Javelin strategy and Research, about $16 billion was taken away from 12.7 million victims in the United States in the year 2014.
In the previous year, about $18 billion had been stolen from about 13.1 million consumers. Identity fraud had escalated in the year 2014 with a fraud prevalence of one victim every two seconds. Apart from the FBI, the Federal Trade Commission’s Consumer Sentinel Network also helps track down the perpetrators. In the year 2015, the body gathered approximately 3.1 million complaints from victims all over the United States (Cliff & Wall-Parker, 2017). Since the body was created in 2001, the figures had increased by about 850%. This indicated a yearly increment rate of about 56%. The progressive rate totally contradicts the traditional crime rates which gradually decrease with time. The figures are an indication that parties may be shifting to the modern white collar crime.
The Federal government through the Federal Bureau of Investigation limits fraudulent corporate activities as they serve to endanger the public’s health through unsafe products or defraud the citizen of their hard earned income. Scams can destroy entire companies, devastate citizens by taking away all their hard earned savings or take away billions invested by stockholders (FBI, 2016) . Schemes have over the years become more sophisticated with advents in technology and schemes. The Federal Bureau of Investigations (FBI) is therefore dedicated to utilizing their skills and employing their resources in tracking down perpetrator even before they begin.
The FBI hires accountants as field agents to look over and investigate crimes relating to financial fraud. The FBI created the Forensic Accountant Program together with the Forensic Accountant Unit to help carry out investigations involving complex financial crimes. The FBIs corporate crime unit brings together intelligence from prior criminal investigations in activities such as money laundering, mortgage fraud, bank fraud, public corruption, election law violation, embezzlement, health care fraud and mass marketing fraud. The FBI generally prioritizes on complex investigation especially ones connected with crime syndicates that serve to render regional, national and international disaster (FBI, 2016) . Special FBI agents work in conjunction with various agencies and law enforcement bodies such as the Internal Revenue Service, the Commodity Futures Trading Commission, the Securities and Exchange Commission, and the Treasury Department’s Financial Crimes Enforcement Network among others, these bodies target the fraud cases that are deemed to devalue the economy.
Corporate fraud is highly ranked as one of the major cases pursued by the FBI in the United States. Apart from the financial loss inflicted on investors, it can cause innumerable damage to the economy if not well monitored (FBI, 2016). The Bureau therefore focuses on cases involving self-deals by corporate executives, accounting schemes and justice obstruction. The FBI majorly prioritizes on the following cases involving corporate fraud: Curbing falsification of financial information is highly overlooked by the Forensic accountants who are part of the FBI. They initiate, implement plans and review plans in litigation activities. They carefully assess digital and paper records, business documents, financial as well as bank records. They employ database tools in the extraction and summarization of quantitative data. The quantitative data is converted into financial models that are later utilized in litigation. Forensic accountants consequently assess and study qualitative data relevant to the corporate crime assess. They ensure to review past and present cases to ensure accuracy and integrity are maintained in the departments.
Investigative accountants are also part of the FBI responsible for the assessment of fraud and corruption in different financial sectors. Corporations are always fully aware that public trust maintenance is fundamental for commercial success. Investigative accountants assess risks and uncertainties in businesses. They monitor fraudulence and offer assistance to management in regards to risk aversion and mitigation of potential vulnerabilities. Investigative accountants majorly prioritize in cases involving financial irregularity cases and corporate fraud (Top Accounting Degrees, 2019). By utilizing a strategic threat management approach, they are able to anticipate risk development and offer an appropriate response. To aid internal clients monitor and manage all activities relating to their data, they utilize advanced technological approaches. They use data analytical approaches, information management techniques and technological approaches to aid executives in strategic decision making.
Other parties in the FBI involved in the fight against corporate fraud are the FBI Internal Auditors. Just like the investigative accountant, they work hand in hand with management on projects. They offer an audit scope, initiate budgeting and offer guidance in strategic decision making. In business, they audit business data, contractor performance as well as the organizational systems. They are also responsible for setting strategic direction in distinct projects. This not only ensures the purpose of the project is definite, but also its overall value. In setting the direction, they prioritize on testing financial transparency, functional methodologies and the Bureaus best practices (Top Accounting Degrees, 2019). The internal auditors created self-reporting and evaluation programs to get and assess timely data across the United States. In the Corporate sector, they implement quality accounting standards for proper performance, documentation and maintenance of financial records.
Forensic accountants are also actively involved in the fight against corporate fraud. As an important part of the financial task force in the FBI, they conduct interviews, initiate plans and analyse financial reports in the course of their investigations. They use the interviews as an approach to identify all individuals involved in criminal activities. Forensic accountants are also involved in the assessment of business and financial records of businesses which aid in litigation. They gather criminal intelligence from different sources, group together data with statistical correlation and generate full reports to be used in Federal cases (Top Accounting Degrees, 2019). They employ forensic skills to gather intelligence on criminal syndicates’ thus gathering information on matters relating to money movement and laundering techniques. Money Laundering is an issue curbing capital flow and largely impacts the efficiency of financial institutions in the economy.
The FBI facilitates economic performance by identifying key perpetrators in money laundering, complicit financial institutions, gatekeepers and key facilitators. The FBI in this case plays their role by investigating cases relating to human trafficking, narcotics trafficking, health care fraud, terrorism and complex financial crimes. All these crimes have a deep connection to money laundering and have a way of easing the cases for the investigators (FBI, 2016). The laundering proceeds are usually apportioned and invested in international trade, real estate, precious metals, virtual currency and third-party service provision. Since money laundering is a complex process that’s hard to investigate and work upon, the FBI works with other law enforcement agencies to identify the perpetrators. They also coordinate their efforts with international partners in addressing threats to the global financial system.
Apart from combating financial fraud, the Federal Bureau of Investigation (FBI) also fights against insider trading which is currently the biggest threat facing the United States financial market. Corporate insider trading refers to unveiling company secret involving asset trading to specific parties with the aim of fraudulently generating high income. This is viewed as misuse of company property for individual gain thus amounting to corporate fraud. Information that may be traded includes anticipated earnings release, upcoming mergers and acquisitions and new product lines.
There is a high need for monitoring insider trading. This is relatively because there are numerous security professionals in the economy (brokers and traders), lawyers with information on mergers and acquisitions and government employees with knowledge of individuals in prominent posts (Top Accounting Degrees, 2019) . The FBI in the fight against insider trading utilizes undercover techniques and operations to uncover the culprits. The FBI in the recent past was able to connect unrelated cases uncovering criminal cartels and syndicates. The National Fair Market Initiative aids the FBI further their attention on insider cases and also fosters the FBIs relationship with the Securities and Exchange Commission (SEC).
Working closely with SEC, the FBI is able to institute fairness in financial market operations. The FBI also coordinates with the North American Securities Administrators association which comprises of security regulators both from the United States and Canada. Globalization has not only heightened local stringency but also regulates insider trading in the foreign markets. Numerous investigations have been initiated overseas by the FBI where the departments attaches utilize partner relationships to initiate investigate and gather intelligence. Persons engaging in insider trading channel all the realized finances into offshore accounts. Technological advancement has largely boosted FBI s investigations on insider trading. In 2012, the FBI employed Michael Douglas to speak out to the public and encourage everyone with any information pertaining to insider trading to come out and share with the FBI.
An insider trading scenario that largely caught the headlines in 2012 was the arrest and sentencing of Rajaratnam; the founder of the Galleon Hedge Group ( Addady, 2016) . During the investigation, the FBI used wiretapping to gather information. In the past, the FBI used such techniques in drug and organized crime investigations. Deploying the technique in white collar crimes during the Galleon Investigation proved successful. Wiretapping gives the FBI a chance to listen as the perpetrators converse. The FBI therefore ensures there is fairness and the investors and publics funds are well protected.
Corporate fraud currently is the biggest issue facing global financial status. The perpetrators ensure to hide their activities behind a legitimate business. For instance, some of the managers may choose to alter accounting information to present a false image of extreme high revenues and profits which totally contradicts the actual financial status. The fraudulent actions not only overstate figures, but also hide some of the issues facing the company such as slow revenue generation, decreasing sale amounts, net loss and escalating company expenses. The FBI by employing different skills such as forensic accountants, investigative accountants and internal auditors is able to identify malpractices in corporations thus safeguarding customer’s life investments. The FBI over the years has joined hands with other bodies such as the Securities and Exchange Commission (SEC) in fighting off white collar crimes. The department has largely focused on money laundering, stocks exchange (insider trading) and financial information misrepresentation. The FBI play an investigative role where it assesses financial activities in corporations. This ensures the laundered funds are reinstituted to their respective owners and the perpetrators fined and ailed for their ill actions. Other roles include the oversight action, reviews on prior cases for accountability and integrity, justice and fairness institution in the economy.
Reference
Addady, M. (2016, March 14). Former Goldman Sachs Director Completes Prison Sentence. Retrieved from http://fortune.com/2016/03/14/prison-sentence-rajat-gupta/
FBI. (2016, May 3). White-Collar Crime. Retrieved from https://www.fbi.gov/investigate/white-collar-crime
Cliff, G., & Wall-Parker, A. (2017, April). Statistical Analysis of White-Collar Crime. Retrieved from http://oxfordre.com/criminology/abstract/10.1093/acrefore/9780190264079.001.0001/acrefore-9780190264079-e-267
Chen, J. (2017, December 14). Corporate Fraud. Retrieved from https://www.investopedia.com/terms/c/corporate-fraud.asp
Top Accounting Degrees. (2019). What Does an FBI Agent Specializing in Accounting Do? Retrieved from https://www.topaccountingdegrees.org/faq/what-does-an-fbi-agent-specializing-in-accounting-do/
