What occupational crimes or frauds do businessmen commit?

Occupational crimes or frauds do businessmen commit

A manager of a soap factory sends a consignment which is to reach its destination in two days. The factory sends a fax that it has detected, after the dispatch of the consignment that a part of the consignment did not pass quality control and should therefore be destroyed.

The consignment arrives. It faxes back that the low-quality soaps have been destroyed. But actually, full consignment is sent out in the market, and the distributor and the factory owner divide between themselves the sale proceeds from the ‘destroyed’ soaps.

Here is another case. A company releases its unaudited annual profits. The figures show a 60 per cent• rise in turnover and 110 per cent rise in profits. The news is sent to stock market and to friends. The stock market price rises by 20 per cent in two days.

That is when 10,000 shares are sold which were purchased only a few days ago. Then the actual figures are released which show that the company’s turnover has grown only by 10 per cent and profits have dipped by 7 per cent.

This is how white-collar (or occupational) crime is committed and it is difficult to detect it. The cheat here is often a highly intelligent, educated and sophisticated criminal who uses the most ingenious ways. He is familiar with the loopholes and the lacunae in the system in which he operates.

Share brokers in the share scam in Bombay in 1992 who committed fraud on many banks and earned crores of rupees belonged to this type of white-collar criminals. Here, it is the ‘grow-rich quick’ mentality which meshes with blind ambition, quest for power, and confidence in the ability to hoodwink the system. There is no readily discernible victim.

White-collar (or occupational) crime is a sleeper who may lie unnoticed under managerial noses for years. Detection comes only when a certain bank collapses or a certain bank is defrauded of millions of rupees.

One concern (KPMG Peat Marwick) conducted the first ever survey into the extent of fraud in the largest businesses in corporate India. In all, 72 business houses responded to the survey. More than half said that they had experienced fraud during the last financial year. The total loss reported by these companies was Rs. 45 crore.

What is significant is that 87 per cent of managers felt that the incidence of fraud will either increase or stay the same in their concerns. As businesses are being globalised or as businesses are becoming transnational and too big to be monitored effectively from the top, economic crime in the form of fraud is bound to increase.

The most common forms of fraud are padded-up expense accounts (billing by employees) and inventory theft (pilferage). It is said that in any big concern, 20 per cent employees are most unlikely to commit a fraud, 20 per cent are prone to commit a fraud, and 60 per cent are susceptible to it, depending on the four ingredients of fraud, termed ‘GONE’ which stands for greed, opportunity, need, and expectation of going scot-free.

The pilferage is found today even among engineers and technical staff in computer business, which is often most difficult to detect. Computer parts (like motherboards, floppy drives, and memory modules) are easily smuggled out.

There is also the practice that at the time of upgrading a machine, local spares are most easily substituted for branded ones and this is done routinely. This is one way to keep the margins high. This is white-collar crime.

Some types of external frauds in business are false invoices, secret commissions, patent infringement, and product substitution and so on.

How can white-collar crime (frauds) in business be checked? This is possible by keeping an eye on the ‘red flags’, i.e., on employees with a lavish lifestyle beyond their salary, or sales or income decreasing while accounts payable and receivable are on the rise.

Factors which increase white-collar crime in business may be identified as: the weakening of society’s values, presence of most sophisticated criminals, economic pressures, lack of emphasis on prevention and detection, and lack of government intervention.

All economic offences (other than bribes) are investigated by specific departments of Government of India. Normally, the Central Bureau of Investigation (CBI) can take up the investigation of only those cases of economic offences which are referred to it for investigation by the department concerned.

The CBI investigation on its own is rare. Another distinguishing feature of most of the economic offences is that for prosecuting the accused, complaints have to be filed by the designated authorities. The police or the CBI cannot file charge-sheets.

Some people may ask: Is occupational/white-collar crime really a crime? The answer is an emphatic ‘yes’ because it has serious effect on the economic fabric of our society, even far more devastating than all thefts, burglaries, robberies and dacoities put together.

In fact, a single crime of the type committed in a city like Mumbai may involve an amount exceeding the amount involved in all property crimes in India for a decade. If one considers the securities scam alone of 1992 in Mumbai, the economic loss involved will equal the loss suffered by India in decades together.