Fraud Zero Tolerance Alternatives

Seven years ago I wrote a script for a short film called “Fraud and Corruption – Forgiveness and Compassion,” which was based on a true story and demonstrated how we often treat the symptoms of corruption and fraud. We tend to “throw the book at” the few people that we catch, but because it’s hard to investigate complex cases, the big cheaters get away and the root causes remain unresolved. 

A couple of years ago in Johannesburg, South Africa I held a short workshop for around 2,500 people on how proactive investigation, coupled with a dose of liberal understanding and forgiveness, motivates people to speak up, thereby tackling the epidemic problem of fraud and waste in social-upliftment programs. 

Before my session, the minister of trade, Bob Davies, gave a short speech in front of the 2,000 people where he reiterated the policy of “zero tolerance” saying that the government would show “no mercy” when it came to cases of suspected corruption and fraud.

I was left shocked and wondering whether Mr. Davies’s speechwriter was even born to witness the success of Nelson Mandela’s Truth and Reconciliation committee and one of the most famous examples ever of restorative justice in our times. (And imagine the reaction of Bob’s children if he came home one day and announced that from now on he would show no mercy and zero tolerance to any misdemeanors and wrongdoings in his own family?)

Let’s face it:  fraud and corruption are all around us. Surely if we are so heavy handed with the few “sinners” that we catch, won’t the large majority who did not get caught breath a huge sigh of relief and just try even harder to stay hidden? And what does our no mercy, intolerant stance say to the people who are caught? Won’t they feel hard done by, unlucky, or in most cases, bitter?

Whether it’s a new scapegoat the media has in its sights, or some more fallout from the “Panama Papers,” I feel that we're becoming an intolerant, dispassionate society where there is less and less room for people to stand up and admit they are wrong. Even though we know that there are hundreds of examples out there, we carry on pointing the finger at scapegoats….because it’s safe to do that.

Take the example of this real “post Panama” dilemma which came to my attention: A CEO feels the pressure because it is discovered that his company has been dealing with customers who have accounts and shell companies in one or more of the Dirty Money Centers (my name for tax havens when they’re misused). 

With the help of his PR and legal advisors he manages to defend himself admirably in the media both accepting full responsibility for not having done more and being more aware, but at the same time raising the understandable issue: “How could I possibly know everything that goes in in a company as large as this?” 

But many years ago the same CEO – albeit in a former life and in a much junior position – was rather involved and instrumental in sending money to so-called Dirty Money Centers. The purpose of the money was “finder’s fees”, “commissions” and facilitation payments which have been the subject of media investigations into bribery and corruption involving a number of countries. Of course, he was only carrying out the orders of his superiors…and he never took any money for himself, but with hindsight, he feels that he behaved rather naively at that time.

But the question remains:  What should he do now?

If he genuinely wants to lie flat and “bare all” he feels he must talk openly about his past experiences.  But on the other hand, today’s intolerant society would crucify him and a scandal-hungry media would have a field day. So as many of us do, we hope that the past stays hidden. But in an ideal world, our CEO would be able to “come clean” and admit his mistakes even more fully and also be respected for what he did, and encouraging other executives who feel trapped by similar circumstances to also step forward and talk about their past experiences and what we can all learn from them.  But to get closer to this ideal world we all need to invoke that human trait in us called forgiveness and turn off the zero-tolerance (for a while at least).

As Gandhi once said, “An eye for an eye will make the whole world blind.” When it comes to how much corruption and fraud is costing the world today, I believe that we are blind already. The word “truth” (or Veritas) is used much in the legal world and “reconciliation” also describes an accounting tool used to show that money is in agreement. 

Surely, we want societies where people are allowed to tell the truth, societies where people are encouraged to own up to their mistakes so that we can reconcile the money to where it should really have gone. For this to happen we need to think afresh.  We need new ways to deal with fraud and corruption.  Ways that actually work.  

And fresh ideas need fertile soil in which to germinate. That implies a new mindset. The starting point should in my view be based on:

  • A recognition that fraud and corruption amount to an unnecessary cost which, if we thought collectively (rather than individually) would all prefer to avoid. In other words, finding fraud early needs to be viewed as “good news” rather than a shock. But it also means that we need to all work together and avoids playing the “blame game.”
  • Wanting fewer whistleblowers rather than more because we have a reinvigorated believe that by working together people can detect fraud and corruption early and deal with it calmly, efficiently, and (unfortunately for the media) in a rather unspectacular way.

A final realization is that we have to stop relying on other like police, the media, regulators, external auditors (or the whistleblower who may never turn up) to find fraud. Even if we don’t know it as yet, the tools are techniques to find fraud before it finds you are available to us all as at last we are entering a new and more democratic age - everyone can today find fraud and corruption. And of course, it pays to show as much forgiveness and compassion as we can.


Nigel Iyer is a partner at Hibis, a UK and Scandinavian advisory organization. MISTI has partnered with Hibis on a number of courses which include "How to Use Data Analytics to Find Fraud," "Find Fraud and Corruption Before it Finds You," "How to Conduct a Fraud Investigation," "Forensic Auditing," and "Internal Auditor's Role in Preventing Fraud."

This article originally appeared on the Fraud Academy Forum.