Government stimulus funds could increase fraud

Ponzi schemes and other old fashioned forms of fraud are growing, and efforts by governments to combat the credit freeze are presenting new opportunities for fraudsters. That is the conclusion drawn in the latest Kroll Global Fraud Report. According to Kroll the greatest threat is misuse of government stimulus funds, particularly in areas such as infrastructure funding.

"Those impacted by the economic instability who are inclined to engage in fraudulent business practices will work to secure stimulus funds by any means possible,” said Blake Coppotelli, senior managing director in Kroll’s Business Intelligence and Investigations practice. “One prime area is infrastructure projects. With the near collapse of the real estate and construction markets, traditional fraud and rackets, such as bribery, kickbacks and bid-rigging, will find a wealth of opportunity in the stimulus funds. In our experience, without extensive anti-fraud policies, oversight and enforcement, 10% of these funds will be lost to fraud and criminal activity.”

Fraudsters will also be provided with new opportunities, says Kroll such as preying on companies as they move into "riskier geographies" in search of growth, to cheating to obtain a piece of the huge government stimulus pies. In its latest fraud report, Kroll says Ponzi schemes and other "old classics" are growing –for example, various financial scams and straight-forward corruption. According to Kroll, " smaller scale" pyramid schemes are multiplying in Latin American countries and elsewhere.

Often some of the most difficult frauds to predict are those committed by so-called "corporate saviours", as they "cook the books" not so much for personal gain but out of the misguided belief that they are acting in the best interests of the company or its employees. "They do not even realize that their actions would be considered fraudulent, or the damage that they might cause to others," says Kroll.

Kroll also says that the risks for companies that look to do more business in other geographies are also more acute in developing regions. Its survey found that the incidence of the top 10 major
frauds is generally higher in the Middle East and African countries, and lower, except for IP (intellectual property) fraud, in Europe and North America.

Despite the proliferation of fraud, Kroll says more regulation may not be the answer. After the Enron and WorldCom scandals at the beginning of the millennium, the US government introduced Sarbanes-Oxley legislation, but Kroll says despite such legislation fraudsters continue to penetrate and defraud companies in any industry, in any country around the world.