Bulllish on Fraud...and Whistleblowing

Time.com recently reported on "The Reasons Fraud Spikes in a Recession." Fraud related calls to a compliance and corporate-governance hotline this year increased by 14% over the same period in 2007. A poll of members of the Association of Certified Fraud Examiners showed that the number of company fraud cases grew over the previous twelve months.

Time.com opines that one reason for the increase in interest in fraud reporting during hard times is because corporate management cuts back on its middle tier to save money. The job of controlling fraud - rechecking for accuracy, for example - typically falls to the middle manager. When middle managers are forced out, the remaining middle managers feel the pinch. They can't keep up with the demand to do more with fewer resources, and fraud mechanisms fall by the wayside.

Those inclined to commit fraud sense new opportunities in recession as well. Last fall, Senator Chuck Grassley loudly complained about the lack of oversight accompanying the distribution of bailout monies, for example. Fraudsters are nimbly trying to determine where they can make money from the bailout and stimulus programs. Today, the new administration is scrambling to put proper controls in place, but bailout dollars have been misspent in the interim.

Along with the new opportunities for fraud comes new interest in whistleblowing. A good many people are frustrated by the economic downturn, and they aren't as willing to tolerate fraud schemes as they were a few years ago. People want to report fraud and are tired of seeing scam artists take advantage of the tax paying public. Thanks to the newly updated False Claims Act and the IRS Rewards Program, whistleblowers are having an easier time reporting fraud and finding it more lucrative than it used to be.