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Is a Fraudster in Your Midst?
 

Whistleblowers are your best way to find out. Make sure you've set up a way to learn early if something's amiss.

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Despite high-profile fraudsters like former traders Jerome Kerviel and Nick Leeson, a recent survey by KPMG challenged the stereotype of the fraudster that is young, eager, and just out of his depth. In fact, fraudsters are most likely to be in senior management positions and to have been employed by their firm for five years or more. Far from naïve beginners, they're generally 36 to 45 years old—mature enough to know better—and employed primarily in finance, the CEO's office, or sales. And very few of them are women.

What's most interesting is how fraud comes to light. It's rare for fraud to be uncovered by finance executives or during any part of the audit process. Instead, the best source of information is internal whistleblowers who've seen—or thought they've seen—something worrying. They may raise their concerns formally or informally but it's crucial that they have a safe way to articulate suspicions.

Over the years, whistleblowers have gained a bad reputation, being portrayed in popular media as eccentric, difficult, and even slightly mad. This is wholly misleading. I've interviewed whistleblowers around the world and plowed through the extensive academic literature on the subject, and one thing emerges loud and clear: whistleblowers start off as dedicated, committed employees who blow the whistle out of concern for their organization. It is when they are ignored, insulted, or frustrated that they become hard to handle.

Sherron Watkins is known as the 'Enron whistleblower' when, in fact, she never went public with the questions she started asking about Enron. Instead, she shared them privately with her CEO, Ken Lay, hoping he would fix the problems she'd found. Likewise, Paul Moore, who discovered outsized risk inside his bank, HBOS, went to great lengths to alert the firm to the dangers it was accumulating. Sure, you can always find a few disgruntled employees but the likelihood is always greater that the whistleblower is trying to help more than hinder.

The fundamental rule of leadership is this: there is always more knowledge at the periphery than at the center. Everyone in the organization hears things and see things. You want all employees to feel it is safe and worthwhile to articulate their worries. Those who do are safety nets; they catch problems before they become catastrophic.

Many companies raise eyebrows when you ask them what provisions they've made for whistleblowers. They read the suggestion as implying that somewhere something is wrong. It may be, it may not. But what is critical is that if something does go wrong, there's an easy way to find out early.

This sounds easy but it isn't. Many large organizations have whistleblower protocols, even anonymous helplines. They're rarely used. Why? Because employees don't believe the processes are truly anonymous or that they will receive the protection or response they seek. The only thing that convinces these employees is stories: examples in which an individual raised a concern, pursued it, and fixes were made that were real and meaningful. It's when whistleblowers want and are allowed to stay inside the organizations they seek to defend that all their peers will believe that truth telling is rewarded. Everything else is lipservice. 

Last updated: Mar 19, 2012

MARGARET HEFFERNAN is an entrepreneur and author. She has been chief executive of InfoMation Corporation, ZineZone Corporation, and iCAST Corporation. In 2014, she published her fourth book A Bigger Prize: How We Can Do Better than the Competition.
@M_Heffernan




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