Employee Fraud – Back in News

In Dreams Begin Responsibilities: Delmore Schwartz

Employee Fraud – Way Forward from Organizational Perspective

Corporate frauds or white collar frauds are not committed by professional criminals but well-educated employees who know that committing frauds can damage their reputation and destroy/limit career options. While a few recent cases have gained media attention due to the huge sums, almost all financial services organizations grapple with multiple incidents of employee fraud.

What Drives Employees to Commit Fraud?

In the corporate world, fraud occurs majorly due to false representation or disclosure of wrong information and due to abuse of position. From an individual’s point of view, there are three conditions required for employee fraud to occur:

·    Pressures due to Dire Necessity: There could be many reasons for an employee’s overpowering need to commit a fraud, e.g., medical/family emergency, debt, lavish life style, personal financial emergencies, expensive habits, gambling, etc.

·         Taking Advantage of Opportunity: An act for personal gain with least chances of getting caught.

·         Rationalizing Precedences: An employee with a strong need and a reasonable window of opportunity to commit fraud can find ways to rationalize his/her act.

Preventing Employee Fraud

This can be addressed through a three -pronged approach:

A. Organizational Policy: Having a set of unambiguously drafted and unequivocally articulated organizational policies relating to employee fraud is a pre-requisite. These include policies pertaining to fraud:

·             Prevention: Employee background checks, compulsory job rotation, avoiding potential conflicts of interest, access to sensitive data, etc.

·                 Detection: Maker-checker-auditor approach, vigilance squads, compulsory leave, multi-level customer interaction, whistle-blower protection, etc.

·       Management: Internal investigation process, disciplinary actions including criminal proceedings, etc.

·                      Communication: Detailed and continuous communication of these policies is necessary to drive a clear understanding of expected behaviours.

B. Organizational Incentive Processes: Rewarding short-term achievement could end up incentivizing behaviour, which may not be in line with organization’s long-term goals. Disproportionate focus on the year’s KRAs against long-term contribution and value creation could result in employees taking a short-term approach to their work.

·         Setting Target at Reasonably Stretched Level: While “stretch” targets are necessary, setting them at unreasonable levels may tempt employees to take short cuts.

·         Fostering Right Management Attitude: While an over-aggressive attitude of management toward profitability and performance can lead to an environment that is ripe for fraud, a lax attitude toward internal controls and valuing ends over means can also result in pitfalls.

·         Uniform & Consistent “Zero Tolerance” Policy: As the way an organization responds or reacts to detected fraud cases plays an important role, a swift, uniform and consistent “zero tolerance” policy is sine qua non.

·         Timely Communication: Timely communication to all employees without compromising on confidentiality helps in reducing speculations, building transparency and making employees partners rather than just recipients of management actions.

C. Organization Culture: Perhaps the most important and least appreciated aspect is the impact of the prevailing organizational culture on employee fraud.

·         Ensuring Daily Observance of Value Statement: A well-articulated organizational value statement/code of ethics/conduct is the hygiene factor, while actual daily observance by each member within an organization is the real differentiator.

·         Healthy Precedence: The way leaders/managers are rewarded and the way their careers are affected go a long way in shaping the personal career strategy of an employee.

·         Uniform Philosophy on Integrity – Irrespective of Environment: An organization’s overall philosophy on integrity in the external environment is also important. An organization that aims to be a model corporate citizen with a “clean” image is more likely to inspire a high standard of behaviour among its employees.

Organizations – Victims of Employees Fraud

·         Reebok India: Mr. Shubhinder Singh Prem & Mr. Vishnu Bhagat (former COO)

·         Tata Finance: Mr. Dilip Pendse & his associates

·         United Bank of India: Ms. Archana Bhargava (Former CMD)

·         NSEL: Mr. Anjani Sinha (Former MD & CEO), Mr. Amit Mukherjee (Former AVP – Business Development) & Mr. Jai Bahukhandi (Former AVP – Warehousing)

Conclusion        

Employee fraud – being a complex issue – requires a multi-pronged approach, consisting of employee-friendly HR policies, intelligent organization design and control systems, clear organizational policies, smart incentives and leadership by example.

Financial Inclusion (Engulfing the generic clique)

“The case for financial inclusion is not based on the principal of equity alone; access to affordable banking services is required for inclusive growth with stability.

Achieving financial inclusion in a country like India with a large and diverse population with significant segments in rural and unorganized sectors requires a high level of penetration by the formal financial system.”

-          Smt. Usha Thorat, Deputy Governor, Reserve Bank of India

Financial Inclusion- providing access to financial services for all has gained prominence in the past few years as a policy objective in all countries of the world. Financial Access 2010, a report of the World Bank released in September 2010 estimates that about half of the households in the world have no access to a bank a/c. A cross country analysis using Financial Access 2010, data indicates that a 1% change in GDP per capita is associated with a change in around 0.3 to 0.6 % in the no. of deposit accounts per 1000 adults.  CRISIL has launched an index to measure the status of financial inclusion.

One of the real time leading examples of financial inclusion that depicts agricultural empowerment in the exact sense is The NSEL commenced connecting the farmers through an efficient platform by facilitating direct selling of agro produce to consumers with integrated delivery systems and assured security. It thereon had a progressive ripple effect in the overall castor seed economy. Gujarat and Kerala have been success stories to reminisce for years to come.

Due to price transparency in the electronic markets, financial inclusion has flourished and trade participants are aware about price levels at the spot exchange. Farmers having an alternative market platform could negotiate a better price.

Therefore, the bottleneck of location gets eliminated and on the flipside supplementary benefits trickle in. Single terminal access to buyers makes buying decisions nippy.  Institutional interference in agriculture marketing is a changed vista altogether. 

Financial Inclusion, in a lay man’s language is highlighted as:-

v The delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society.

v Financial Inclusion has only gained importance since the early 2000s.

v A stark example of financial inclusion in India is the Aadhar-linked bank accounts planned by RBI. Such is a step to meet its commitment in financial inclusion.

v The long struck disease of debt-traps over the poor people will be eliminated. Unlawful money lenders and corruption have been a devastating curse.

Hence, there are transformational steps need to be taken to achieve greater financial inclusion. Let us deliberate on specific key elements:-

ü Relaxing KYC norms

ü Advancement of technology

ü Rural evolvement and progress

ü Simple and basic structure of operations

Important pressing needs makes focusing brain lens on financial inclusion indispensable, such as:-

v Inculcating savings habit

v Providing formal credit avenues

v Plugging gaps and leaks in public subsidies as well as welfare programs

Reserve Bank of India is realizing the value of banking for the poor and such vision has come into action by NSEL being the torch bearer. Such is the metal to move past stagnation and advance towards sustainability.

Along with RBI’s mandate to open branches in rural India with strength of above 1000, are the policies incentivizing usage and perking up livelihood of the greater good. This catalyst bourse has provided market intelligence and serves as a think tank cum information bank, enabling farmers to take informed as well as down to business decisions.

Bringing long term domestic savings to the stock market can be accomplished with financial inclusion. Even common sense given, financial inclusion is the key to stimulate growth and rural development, control inflation and enhance efficiency.

The Indian Government is taking proactive steps such as rural employment under the National Rural Employment Guarantee Act (NREGA), in which payments are made through bank accounts, with job cards serving as a document of identity. The UIDs planned to be provided to residents will further facilitate financial penetration as these will serve to meet the KYC norms for account holders with small value transactions.

Consequently,

It is Spot-on to say, “Mobile services, not wallets will lead to financial inclusion.”