We are all familiar with the infamous quote about the certainty of death and taxes, but as a business ethics keynote speaker, business ethics consultant and book author, I could surely add the word “fraud” to that statement. For fraud shows no signs of abating especially when it comes up against the world of business.
Exhibit “A”
As Exhibit “A” to my above statement, I would give everyone the latest Federal Trade Commission report – FTC (February 23, 2023). As a business ethics motivational speaker and business ethics consultant I must admit that the fraud news from 2021 to 2022, is even worse than I might have once believed. In fact, from year-to-year, it was more than 30-percent worse.
The top frauds (I’ll get into more detail in a minute) are so-called frauds that involve investment and those scams involving representatives who are largely imposters. Those two categories stole (and I knowingly use those terms) $3.8 billion and $2.6 billion respectively. Other top frauds include so-called “prizes and sweepstakes,” investments and “can’t miss” business opportunities. Before getting more specific, and germane to my argument, I should add that loans to imposter-run business skyrocketed from $196 million in 2020 to $660 million in 2022.
Let’s stop for a moment to discuss that trend.
My blog (Chuckgallagher.com), routinely posts frauds where surrogates who allegedly claim to represent celebrities, athletes, foreign entities, government officials, scientists and other notables, separate investors from their money. The investments ranged from condominiums to rock concerts to biotechnology companies to real-estate and land transactions. How does this happen?
For starters, many otherwise bright people become star-struck when famous names become part of a deal. Unfortunately, we live in an era where little thought is given to due-diligence and developing a solid business plan. I call it the Reality TV syndrome, where people believe that the reality of what they are seeing is the truth rather than fully engaging in the necessary research to explore the investment.
In 2022, the FTC received something like 2.4 million fraud reports. About 1.2 million frauds were initiated online through social media, such as a scam on Facebook or LinkedIn. This indicates that many fraudsters were able to initiate scams and/or steal important information (including bank account numbers, credit card information and email addresses without even having to engage. Incidentally, telephone solicitation scams were still effective in 2022, where the average amount stolen was in excess of $1,200.
Contrary to Opinion
Contrary to what may be popular opinion, many frauds originate within companies where so-called sophisticated employees either intentionally or un-intentionally participate in the theft. It may come as easily as an employee, with too much time on their hands randomly opening-up unauthorized email attachments and answering questionnaires on behalf of the organizations, to much more sophisticated frauds where employees actively engage with vendors, customers and agencies. Billions have been lost in bribes, theft of services, substituting substandard materials and kickbacks.
The origins of most business frauds may be linked to two factors: a lack of ethics training and a lack of reinforcement of that training. When there are no expectations, fraud ensues. It is as basic as that. I have heard reports of employees participating in phony deals where someone claimed to have purchased stolen televisions to other frauds, where employees engaged in online gambling, risking company funds. Fraudsters understand boredom and the need for greed and they take advantage of that.
Perhaps the most worrisome fraud trend of all is how much it has increased. Despite all of the announcements, warnings and consequences, the fact that year-to-year there was a 30-percent increase, indicates that not doing anything accomplishes nothing.
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