Man at desk casting a shadow of a devil
From Pivot Magazine

Us versus fraud: we need to fight corporate financial crime together

Diligence, healthy skepticism and a sense of responsibility are tools we can all use to help stop financial misdeeds

Man at desk casting a shadow of a devil There are so many temptations for management to engage in questionable behaviour, and once the boundary is pushed, it is hard to pull back (iStock)

With the FTX fraud scandal in the news, many Canadians were reminded of our own crypto exchange disaster a few years ago involving Gerald Cotten at Quadriga Fintech Solutions. Other prominent companies that have been charged with, or alleged to have committed a variety of wrongdoings include Theranos Inc., Bridging Finance Inc., the former Barings Bank, and Wirecard in Germany. What these companies have in common is fraud, deceit, conflict of interest, poor internal controls, lack of corporate governance: pick your poison.

Performing our daily functions at work can be overwhelming; how can we find the time to add preventing fraud to the list? Fortunately, the answer lies with us. Never mind thinking that someone else will figure it out: all of us can do more. And it is not that difficult. Although each fraud appears to be unique, or committed by clever people, there are a few themes that continually recur. Once we consider this then ignorance can be replaced with awareness.


When frauds are uncovered one of the big surprises is how many warning signs were ignored. The whistleblower is often the first to speak up. In many cases it’s an employee who is sharp enough to realize that something is amiss. They, however, will often be ignored or, even worse, fired before their concerns are investigated. In some cases, several whistleblowers over many years have to raise the alarm before someone listens. A case in point is Wirecard. Not only was a whistleblower ignored but was subjected to criminal charges—by the German regulator no less—for disparaging the organization. An inspiration for all whistleblowers is the individual who identified so many concerns at Bridging Finance that he filed a complaint under the Ontario Securities Commission whistleblower program. This individual has no connection to Bridging Finance other than access to publicly available documents. Kudos to him.


Fraud that destroys a company usually comes from the top. Presidents and CEOs have so much authority that wrongdoings at this level can take several years to uncover. The board of directors, to whom the CEO reports, must be especially diligent in confirming what they are being told. In its simplest terms, you do not want one person to be able to order, receive and pay for goods or services. Organizations separate these functions in order to prevent unauthorized purchases. Be suspicious of people overriding controls—policies and procedures are designed to address control weaknesses.


If your organization’s employees behave properly, even when no one is looking, then you have established an ethical culture. There are so many temptations, however, for management to engage in questionable behaviour. Once the boundary is pushed, it is so hard to pull back. When high profile cases of fraudulent transactions made headlines at Barings Bank in 1995, it was due to the escalating amounts and increasingly frequent patterns of the transactions.


Unfortunately, fraud is also common in the investment business. We’ve all heard stories of the money manager who appropriates the funds for their own use, invests the money contrary to the objectives of the fund’s mandate or, even worse, creates a Ponzi scheme. Quadriga and Bernie Madoff are two examples of spectacular frauds. In these cases investors have little hope of recouping their investments. The regulatory authorities in Canada, and their patchwork compliance approach, struggle to understand this industry. It is buyer, or investor, beware. Often, the victim is blamed for being gullible. But who isn’t attracted to the promise of higher returns?

A rarity in today’s business community is the individual who admits that more should have been done to detect fraud and other misdeeds. It would not be difficult to develop a template within individual businesses or even entire industries to address these concerns. After all, you could be the next victim.


Check out CPA Canada’s extensive technology and anti-money laundering resources, as well as 2023 annual fraud survey. Learn about top scams currently making the rounds, why CPAs need to pay more attention to cybersecurity, and how data analytics and machine learning are being used in the fight against financial crime.