Blog 8- Fraud, Why do it?

There has been various fraud scandals in multiple companies over the years but how does it happen? And why do people do it? I think it takes a certain type of person to engage in fraud, someone with a specific type of ethical/moral compass and, I would expect, that not a lot of us would ever get ourselves in such a position. Having said this, I have never worked in a large corporate business and probably haven’t ever being in a situation where myself or anyone around me would engage in fraud. So if I was in a certain situation and under pressure or being offered certain bribes would I think differently? Would we all?

One example of why people may choose to commit fraud is incentives and pressures from above. Incentives of financial enticements can put a lot of pressure on employees within a company and can act as temptation to commit unethical or fraudulent behaviour. Individuals may feel that they need to cheat to get ahead in order to meet targets for financial gain; as well as financial reward, another incentive to meet targets may just be for someone to keep their job, I can see how this may put immense pressure on someone to do whatever they can to meet their targets. A company that applied these kind of incentives to their employees was Wells Fargo.

Wells Fargo set aggressive and unrealistic sales targets for their employees, which was said to have ‘battered’ employee morale and led them to engage in ethically questionable behaviour. Said unethical behaviour was basically employees opening ‘phony accounts’. To meet quotas, Wells Fargo employees ordered credit cards in customers’ names without their permission, opened unneeded bank accounts and even forged customers’ signatures among other things. This fraudulent situation landed Wells Fargo at the centre of a big scandal: having to pay out millions in fines and letting go of over 5000 workers found to be involved in these practices. Now in this situation, can I see why people did it? I feel the executives at Wells Fargo were almost encouraging this behaviour; they must have known that the targets they were setting were unrealistic, therefore surely realising the figures employees were reporting back were… unrealistic. I suppose I can empathise in a way with the employees at Wells Fargo, having such pressure on your shoulders to do well and feeling like the only way you can do this is by cheating. As well as the fact that everyone around you is probably doing it too, however, personally, I still don’t think that I would engage in fraud. I think I would realise this isn’t the kind of company I want to be working for and get out.

Contrary to Wells Fargo- employees committing fraud- usually most frauds are conducted by the most senior people in a company. Obviously CEOs and other senior executives think that no one can touch them; they can engage in unethical behaviour but do so under the radar because no one can question them. I think they also believe that they can convince external companies, such as auditors, that what they’re doing is right because of their power. Previous studies have shown that CEOs and CFOs are culprits in the majority of fraudulent cases. One study showed that in 2010, in 89% of all fraud cases the CEO or CFO or both were involved. Can I understand why they do this? Well, I can see how they think they can get away with it. I can understand that they see the opportunity, but no, I still don’t think that having this great opportunity to make yourself more money is an excuse to engage in unethical and/ or fraudulent behaviour. In my opinion, being high up in the company is even less of an excuse; the whole company looks up to you, you are a representative of the company and brand and you choose to drag the whole name through the mud if you get caught- which most people do.

A CEO who has recently being caught out in a fraud scandal is Elizabeth Holmes, founder of Theranos- a blood-testing group. Elizabeth Holmes was charged for committing a multimillion-dollar fraud where she conned investors, doctors and patients. In brief: Holmes thought she had designed a machine that could check people’s blood for all sorts of diseases like cancer, using a small sample. She then sold the idea to investors but every time she showed them this ‘great machine’, it wasn’t working, so showed them a fake video instead. The thing was, Holmes believed that she could make this machine work with the right amount of money so she carried on deceiving everyone. Let’s see in this situation if it can be justified why Holmes did this. She had ‘noble cause syndrome’, making her think that what she was doing was so good and so noble, that it didn’t matter how she got there; it didn’t matter that she cheated investors out of money, the outcome would be worth it. Holmes also had the power to do this; being the founder of the company she was the most powerful person and anyone who questioned her could be (and were) sacked, leaving her with the opportunity to carry on what she was doing. Once again, do I agree with why Holmes committed the fraud? No. I can see that her rationalisation could be that if she just got enough money she would be able to make it work and, admittedly it would be amazing if it did work. However, the bottom line is, the machine didn’t work and never did; she was essentially just lying and lying, so yes I can see why she did it, no I do not agree with it nor think I would do the same in the situation.

Personally, I don’t think I will ever understand why anyone commits fraud. One major reason being people always get found out in the end and end up in a mess. The last two weeks of lectures have really opened up my eyes to just how much unethical behaviour is going on in companies. Also, I can see how easy it may be to try and commit fraud, when looking at the different methods of fraud going on in business. In my future career, I will definitely question and think rationally about any kind of cash incentive I am offered or unreachable targets I am set; questioning if the behaviour going on in the company is ethical and legal.