Fraud factor increases with technological advances.

• Author: Louiseize, Kelly
• Position: Corporate regulation

Massive bankruptcies resulting from fraud in large western world companies have left a crisis in confidence in the markets and through the governments.

"What we are looking at is an awareness in North America and around the world that there have been problems with corporate governance," Leonard Brooks, professor of business ethics and accounting and director for diploma in forensics at the Rotman School of Management at University of Toronto says.

Scandals like Enron have triggered a change in the governance structure and approach throughout the world, Brooks explains.

Now companies "have to be registered in the Security and Exchange Commission (SEC) in the United States, and they have to obey the rules, which are being changed by the Sarbannes-Oxley Act."

The Act, created in June 2002, requires the SEC to establish new rules for corporate governance.

"That is changing the corporate world," since the "largest corporations around the world raise money in the United States."

The shift in the corporate structure standards has business people struggling to determine what leaders need to do to improve the governance within their corporations, he says. As a result, more interest in business ethics has become evident.

"It makes sense from several perspectives that business people do what is right, not just what makes a profit."

Historically, certain professions have built-in conflicts regarding ethics. For example, the accounting profession has inherent conflicts of interest that have to be guarded against, Brooks says. A manager whose job is to increase profits often works close with the auditor.

"(Auditors) are often the ones who suggest to the directors 'yea we like this honour, let's appoint him for the next year."

A recent study by PricewaterhouseCoopers (PwC), Global Economic Crime Survey 2003, indicates companies with over 1,000 employees are more susceptible to fraud. James Hunter, president of KPMG forensic, echoes the same sentiment. He says the increase in fraud cases is directly linked to the onset of technology (computers).

"People like myself tend to be investigating much larger frauds than we would have been doing a generation ago,"

Hunter uses Barings Bank in England, which was around for 230 years, as an example.

"Within a 10-day trading period that bank collapsed because of a rogue trader. He could not have done that without the technology."

So what can companies do to reduce the possibility of fraud occuring in their business...