Treasury Today Country Profiles in association with Citi
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June 2015

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Editorial

Fraud: the pitfalls of growth

It’s no secret that companies are firmly focusing on growth again. Yet, at a time when market volatility is high, geopolitical stability is being rocked, and international regulatory regimes are growing ever tighter, growth can be tricky to find.

So, as corporate managers are being pushed harder by boards and shareholders to find new revenue streams, concerns are mounting that some companies are not only taking a disproportionate amount of risk, but also encouraging unethical behaviour. UK supermarket Tesco overstating its profits by £263m, as discovered in late 2014, is just one such example. More recently, US bank Wells Fargo has been accused by (and is being sued by) the City of Los Angeles of pressuring employees into committing fraud in order to meet growth goals.

Documents lodged with the court reportedly suggest that the retail bank’s employees felt under so much pressure to perform that they believed their only option was to be fired, or to commit fraudulent acts as a means to reach the over-ambitious sales targets they had been set. Speaking at a news conference in early May, City Attorney Mike Feuer said that “in its push for growth, Wells Fargo often elevated its profits over the legal rights of its customers.”

Wells Fargo has said that a handful of rogue employees are to blame, and that these few have been either disciplined or let go. Nevertheless, the bank’s performance quota system that supposedly led to fraud being committed in the first place apparently remains unchanged.

Just as unattainable growth targets can foster internal fraud, companies moving into high-growth markets (often without doing significant local research) may also be opening up their ranks to an increased risk of fraud, bribery and corruption. According to EY’s Europe, Middle East, India and Africa Fraud Survey 2015, 61% of respondents in so-called rapid-growth markets believe that bribery and corruption are widespread in their country. The five countries with the largest perceived bribery and corruption risk were: Croatia (92%), Kenya (90%), Slovenia (87%), Serbia (84%), and Portugal (82%).

Since organisations across the globe lose approximately 5% of their revenue to internal fraud each year, and among the most common departments for fraud to occur in are finance, accounting and purchasing, employee fraud should be high on the treasurer’s watch list. Granted, the potential for internal fraud comes in many different guises – from straightforward theft through to opportunistic crimes whereby a procedural loophole or a weakness in the company’s systems is exploited – that it can be very hard to guard against. Nevertheless, it is part of the job description of every responsible treasurer to ensure that the risk of internal fraud is managed as effectively as possible.