MA500

Bad management ‘causes fraud’

By Nicholas Robinson contact

- Last updated on GMT

Stop fraud: how to prevent fraud in your business
Stop fraud: how to prevent fraud in your business
There’s an argument that bad management can result in fraudulent behaviour from staff towards their employees, according to a legal expert.

Speaking at the MA500 in Bath this month, Arun Chauhan, founder and director Tenet Compliance and Litigation, said bad management practices should be resolved first to prevent fraud.

However, what constitutes fraud isn’t necessarily black and white, with consumers and staff not identifying when they are doing it, or even perhaps not knowing what fraud is.

For example, around two thirds of consumers, he said, would not own up to being undercharged for a meal in a restaurant, however, if they were overpaid for a month’s wage at work, the majority of people would own up to it.

An area of fraud

“But, both of those scenarios are an area of fraud. You’re getting something without paying for it and keeping it. But that’s the problem with fraud, it’s not black and white,” he said.

“Leadership can impact on levels of fraud in your organisation and can set the tone for the culture in return, in what is called ‘the trigger of fraud’.

“Bad leadership can result in bad attitudes that employees act out of character in a culture of pressure where they don’t think they’re cared for and it can affect moral judgment where they may steal from you or commit fraud.”

To put it into perspective, Chauhan gave an example from the financial crash of 2008, saying that an operational change within a company that had originally been family-run before it was floated, had led to staff morale being diminished and a whole change of ethos.

“There was tunnel vision around certain things [within the company] and looking after yourself, and that led to moral compasses being blurred and the leaders authorising it,” he said.

Therefore, he added, it is important to look at what you’re asking your employees to do and consider how they will react, because it could result in fraud.

Become so disenchanted

“People can become so disenchanted that they can’t see straight and their moral judgment is clouded. There’s a lack of balance and they can’t make sound decisions [when they’re not happy or are facing pressure],” he explained.

“The impact of leadership can cause people to veer away from what they really think is right. Most people think people commit fraud because of greed, but it starts with pressure – life, work, addiction or addiction.”

Such people will then work out how to produce the same product or deliver the same service, while also being able to pocket some money for themselves or take something from the business.

But, the ultimate message was: “If leadership creates the wrong culture, you create disenchantment and therefore increase the risk of fraud.”

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