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Should company directors be worried about this? What does it mean for them? In my view, they need to sit up and take notice.

Tone at the top is important. This phrase appeared in the Sarbanes Oxley Act which was brought into being following the accounting scandals at Enron, AOL/Time Warner and Adelphia Communications, to name a few.

US legislators recognised that an organisation's moral compass is set by its directors and senior management. If this is out of kilter, then the whole organisation follows suit.

My view is that the moral compass is set at an even higher level. We look to our leaders to set the tone. Our leaders will be people we look up to and may be politicians, sports personalities, or others.

High profile individuals 

During the mid-1990s, I spent a great deal of time working in a European country investigating corporate fraud. The investigations were focused on directors and other senior employees.

Whilst interviewing them I was surprised by their attitudes to the matters under investigation. They either could not see why certain matters, such as the payment of "incentives", "commissions" or "agents’ fees", were of concern or if they did recognise that such payments were improper, they might then try to justify them in terms of business won.

Interestingly, in the lead up to this period, there had been numerous allegations concerning acceptance of improper payments by high profile individuals.

So what does this mean for the UK? Based on my experience in Europe, we are likely to see an increase in the levels of corporate fraud.

Directors and employees will take their lead from politicians, sportsmen and others, and company employees will further take their lead from their directors.

Hands in the till 

In a number of cases that I have investigated, the company employee under investigation has alleged during interviews into their own conduct that the manager or director above them was also involved in a case of fraud.

Further interviews usually establish, in fact, that one of the reasons why the employee has committed fraud is because he has been aware for some time that the senior member of staff had his "hands in the till" and that the fraud was known to many and no-one had done anything to stop it.

Therefore, the employee convinces himself that if it is "alright for the goose, it is also alright for the gander".

Another common claim is that the employee didn’t know that what he or she had done was wrong, for example appointing a company owned by a brother-in-law to undertake work, as it was not written down anywhere as a rule.

Two points of interest come out of this. Firstly, it is important to have a company code of conduct so that each employee is aware of what is right and what is wrong, which includes directors and senior management. Then, no employee can claim, “I didn’t know I couldn’t do that”.

Effective whistle-blowing policy 

The second point is that frauds are normally known about long before they are officially investigated. Many employees do not know to whom to report their suspicions of fraud, and are not convinced that anyone would actually do anything if they did. It is important to have an effective whistle-blowing policy.

Companies need to stamp down on any “hands in the till” activity as soon as possible and be seen to be taking action against individuals.

“Hands in the till” does not only mean someone stealing company assets. One of the most widely perpetrated types of corporate fraud involves procurement.

The incentive to the employee here takes the form of a “kickback” for contracting with one company over another, by inflating orders or approving over-priced invoices.

The kick-back is often not in cash and can therefore be difficult to trace. In many instances, the kick-back will also be out of proportion to the size of the contract being awarded.

Gifts and entertainment policy 

In one instance, I investigated a fraud where the contract was worth £10 million but the incentive to the employee was a crate of champagne and a weekend of sport.

This particular company did not have a gifts and entertainment policy which would have required the registration of such items.

This fraud may have come to light earlier if it had been disclosed by the employee or the employee might have thought twice about his decision to award the contract in the first place.

Andrew Durant is a Managing Director in Navigant Consulting's Disputes & Investigations practice.

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