Many believe that financial crime can be prevented and dealt with adequately by the likes of the police and other government regulators. This is not the case and this complacency is even adding to the imbalance between the scale of fraud and the size of the regulatory forces that are in place to fight it. Therefore making even more money available to fight fraud is not the solution unless the effectiveness of the preventative measures can be improved.
One of the most independent and objective viewpoints of the problem of fraud is enjoyed by the forensic accountant who specialises in fraud cases. He or she will see a range of different cases from both the regulator's position and that of the criminal including money laundering and proceeds of crime cases. This leads to an understanding of the scale and variety of the problem, which includes cases of mortgage fraud and criminal defence.
A big realisation is that there is so much scope for fraud and financial malpractice on a massive scale. This is both within the public and the private sector. What is even more astonishing is that the malpractice is being carried out not only within the criminal elements but often within the regulatory bodies themselves. Such is the scale of the white collar crime problem that tenacious regulators do not care if they throw the book at those that do and do not deserve the punishment alike.
This sometimes reckless approach to fraud regulation is the foundation of the adversarial criminal defence system. This is where just because a person is accused of a crime or having a criminal lifestyle they are presumed innocent until proven guilty. This is by the criminal courts at least - not by the prosecutors. As a result a large amount of public funds is available for an accused criminal so that they can defend themselves against the equally expensive prosecution. This is why there is often the need for a forensic accoiuntant to help prove innocence.
Preventing fraud in the first place would reduce the dependence on dealing with fraud by the regulators. The best place to start preventing fraud is within the private companies and public organisations themselves. This is where the lack of effectiveness often means that the problem of fraud can even be fuelled by the often inadequate fraud defences that many large concerns put in place. Fraud prevention is often not treated with the seriousness it needs, being reduced to form filling excercises and simply hoping the fraudster will strike elsewhere.
Making more public funds available is one potential solution, for the utilisation of private companies and individuals who specialise in anti fraud activities. When the public sector absorb their own funding dealing with a problem, the cost is often greater and the results worse than when outsourcing to private sector individuals. A consultant paid three times the hourly rate than the wages of an employed policeman or government tax inspector can work out cheaper in the long run. For every hour paid, an hour's quality input is obtained, rather than an hour of training, sickness or dealing with the vast amount of administration taking place within public sector organisations. Many of the excellent operatives within the police, tax authorities and other regulatory bodies will agree with this, but not many will brave the uncertain world of the private sector!
A person or business operating in the private sector providing fraud prevention and other fraud regulatory services must give results and must work efficiently. It is essential that they achieve the promised results in order that the public funds are confidently spent - to achieve at least the same but preferably more value than when usiing in-house resources. Encouraging private input in this way can improve the economy, reducing the dependence on the private sector and creating a culture of entrepreneurship and industry.
The publicly funded criminal defence system is one area of public funding that is failing to deliver an adequate service. It is a massive area of expenditure for the government and yet it does not work. The system is a good example of an overly heavy public organisation being utilised to outsource private sector lawyers, barristers and experts used in criminal cases within the defence team. Placed next to the wasteful prosecutors, it is no wonder that so many massive fraud trials fail, or cost millions and never get to court. There must be a better way of balancing public and private sector resources that at the root level both contain so many skilled and experienced persons capable of dealing effectively with much more economic crime than they currently do.
The solution may be to not only increase the utilisation of privately funded resources for the various tasks they are currently used for by encouraging existing public servants to "go it alone" but also to extend private sector involvement to the management of the different resource areas also?
Mark Jenner specialises in fraud prevention and anti money laundering services. He is a Fellow of the Institute of Chartered Accountants, a Certified Fraud Examiner and has a Masters Degree in Fraud Management. He assist victims of fraud, criminal defence lawyers and fraud regulators.
