Fraud Casebook: Lessons from the Bad Side of Business

Joseph T.Wells (ed)

Wiley (US), 2007
ISBN 0470134682

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Joseph Wells is the founder and chair of the Association of Certified Fraud Examiners. As such he and his members have been seen, investigated and shaken their heads over an awful lot of awful behaviour. In a little over 600 pages, we get 62 highly readable case studies, grouped under four main headings - asset misappropriation (theft of money mostly), corruption schemes, financial statement fraud schemes and a miscellany of other frauds.

All the studies not only provide a very readable outline of the facts and the investigation (not quite Raymond Chandler, but close), but also analyse how the fraudsters avoided controls, what measures could have prevented the frauds and lessons for the future.

It is disturbing to consider how many of these frauds were perpetrated by insiders, that so many were given so much trust to abuse and how a tiny minority of dishonest employees can poison an enterprise. It is equally disturbing that so many of the victims pretty well invited dishonesty through having poor or no controls, or not applying the controls they thought they had put in place. (It is no use locking your door and leaving the key in it.)

Common elements in preventing frauds emerge as you read through:

• Enforce segregation of duties.
• Check backgrounds and references before giving employees (even temps!) access to corporate assets. A sizeable minority of the frauds reported were repeat offences.
• Control exceptions to normal procedures. Is that emergency payment by cheque really necessary? Should Joe be taking all that stuff home with him?
• Apply control checks and balances to everyone, including top managers.
• Ensure that mandated control checks are actually carried out.

If your organisation's response to the threat of insider fraud is "But we trust our people", the message from this book is that trust is fine, but open to abuse by a minority. "Trust but verify" protects everybody: the organisation, the honest majority from the dishonest and the potentially dishonest from themselves. Recoimmended (but scary) reading.

Reviewed by Lee Coppack, Editor of InfoRM