Canada companies expects to see more workplace fraud

Canadian companies can expect to see more workplace fraud and balance sheet cheating because of the recession, said a corporate fraud expert Wednesday.

Mike Savage, head of fraud investigation at Ernst & Young, said the incidence of employees swiping cash and companies hiding loan losses and other financial sore spots jumps during economic downturns.

“[During recessions] two things happen. Companies tend to detect frauds that have been going on for a long time. And employees start worrying [about keeping their lifestyles],” he said.

As a result, companies need to be tough with those workers or executives caught with their hands in the till or engaged in other kinds of malfeasance, he said.

“It stops others from doing the same thing,” Savage said.

When the economy is strong, companies are engaged in growing profits and often do not ask hard questions of stellar performers, experts said.

As a result, companies face huge problems when these problems come to light.

In a prominent mid-’90s example of corporate fraud, rogue-trader Nick Leeson forced his employer — Britain’s Barings Bank — into receivership after piling up millions in unauthorized derivative trading losses.

Leeson might be an extreme case, but there are a large number of smaller frauds that damage companies and governments, Savage said.

Savage, a veteran of these white-collar wars, said he once was met by denial about an apparent fraud from a chief financial officer at a company in another country.

“He said he had sat down with the CEO who said ‘Your figures must be wrong.’ After a couple of months of this, it became easier for him to go along,” Savage said.

At another firm an employee with a gaming habit started taking from the company to feed her addiction.

“Nobody asked any questions,” Savage said.

“Look, these are nice people. It is not like they go around with masks on and carrying a swag bag,” he said.

For companies, the first line of defence is making sure that company cutbacks do not hamstring crucial areas such as the legal department, groups within the organization charged with protecting the company against fraud.

Savage said firms have been chopping older workers, people who might have gone through a downturn before and would recognize warning signs of bad behaviour within a company.

“A lot of people in North America haven’t gone through this before. I wonder if we are experienced enough as a business community,” said Savage.

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