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The 12 steps in the pattern of corporate fraud and the effect of whistleblower

White collar crimes are actions of a complex involving the participation of several people within the organization of high and middle levels, which typically operate on a 12-step pattern according to recent research.

Among the actions that are effective in these situations, it is essential to establish channels of communication, together with an adequate internal control structure to foster an appropriate ethical climate and trust.

The figure of whitleblower, implemented based on a reporting line of internal and external irregularities, becomes key within the framework of internal control of a company, since its existence triggers the detection of irregularities within large corporations. Know your benefits.


In early 2010 it announced an investigation of a Canadian research group called "12-step process of White collar crime" (The 12-step process of white collar crime) in a publication of the International J. Bussines Governances and Ethics, (Vol. 5, NOS 1/2, 2010), which proposes a general pattern of how to carry out the process of corporate fraud. This process is structured through a scheme of twelve stages from the beginning of the employment relationship of the fraudster, the recognition of its key position within the organization's processes, viewing opportunities and possible mechanisms to cause the acts fraudulent, and finally the detection and confession of the facts he / individuals involved in the fraud.

The 12 steps

According to research, the process comprises the following steps (1):

1. Recruitment occurs in a position subject hierarchy of the company, stresses that the position provides the opportunity for illegal actions. This step enables the other 11 and this is where the opportunities are displayed.

2. It focuses on the personality of the subject contract whose characteristics seráncompatibles acting for the fraud.

3. Identify top players within the company to act as facilitators in the process.

4. The subject is surrounded by taxable persons (ie mid-level employees), usually with little experience in order that no inroads into too many questions.

For the moment, with all players in order, the opportunities become more attractive and tangible.

5. At this stage there is some doubt in the participants which are managed by the subject to move the action.

6. Due to medium / low of the participants accompanying the leader, they show signs of lack of confidence in them.

7. At this stage action is rationalized by the leader and his team, freely materializing actions of corporate fraud.

8. The leading press participants to continue taking irregular, there are signs of psychological abuse and manipulation by the latter.

9. It creates a vicious cycle related to the success of the actions perpetrated and the need for greater achievements.

10. The internal pressure of the people involved and conflicting ethical values ​​of the participants began to take an increasingly more prominent in the behavior of individuals.

11. One player speaks, the pressure is too great, their backs do not support it and the fact is communicated to a third party outside the team.

12. You end the game and the leader who communicates irregularities perpetrated all actions or deny full responsibility for the events.

Although the study was conducted by professional psychology, psychiatry and occupational therapists, and in fact is intended to describe the psychopathology of white-collar fraudster (White collar criminal) focusing on the process through the criminal, it is interesting to note how in this last stage of the fraud is of particular significance is the functionality of the lines of complaints through the figure of the whistleblower, that although the term has no exact translation in Castilian, is used to identify that person that you know a certain fact exteriorized through a specific communication channel, as this is usually individual who facilitates the detection of irregular actions.

The whistleblower and reporting channels

The figure of whitleblower become key in the internal control scheme of a company, since its existence triggers the detection of irregularities within large corporations, such as in cases like Enron, WorldCom, MCI, among others, and also in government entities (eg U.S. IRS has a special office of "Whistleblower activity" carried out an annual report to Congress through Section 7623 of the Act originally nominated as "Tax Relief and Health Care Act of 2006") and even in small-and medium-sized.

Most notably, in the United States there is a whole legal regulatory framework aimed at people who act as whistleblowers because of the important role they play in big business. Statistics provided by the ACFE (Association of Certified Fraud Examiners) in their annual reports (2) 2008, 2006 (are issued on a biannual basis) reveal that the main method for the detection of fraud within companies is to conduct complaints passive participants, over other forms of control such as Internal Audit, Internal Controls.


The importance of whistleblower activity within the active process of fraud, implemented based on a reporting line of internal and external irregularities, is closely related to internal control structures of firms and their weaknesses.
One of the main weaknesses of a system of internal control, according to comprehensive internal control framework (COSO Report), is the circumvention of controls by executive directors and managers due to its position within the organization allows them to maintain a lot of financial resources and personnel available.
How to design effective controls to mitigate creative accounting gimmicks to inflate results or hide losses, when they are carried out by senior management and key personnel of the area from other areas "

Under these circumstances it is very complex for organizations to establish and parameterize effective internal controls to act in a timely manner on those weaknesses, so it is essential to incorporate a control environment that includes the existence of channels responsive and effective communication that lead to staff to observe deviations from company policies or receives pressure to cause infections, such activities can report anonymously, as is described in step 11 of the model presented.

Such attention has been given to the independent channels for reporting irregularities, its implementation is mandatory in nature for firms traded on exchanges under the aegis of the SEC and are reached by Sarvanes Oxley Act

Conclusions

White collar crimes are actions of a complex involving the participation of several people within the organization of high and middle levels, which typically operate on a 12-step pattern according to research.

Its complexity lies in the internal structures that are set for implementation and the objectives pursued.

Among the actions that are to exercise effective control for these situations, it is essential to establish effective communication channels within the organization, together with an adequate internal control structure to foster an appropriate ethical climate and trust, where the actions are forwarded to the objectives of the company and good business practices, are penalized and, moreover, be awarded to employees who work with this scheme.

(1) For the further development of the stages outlined above refer to the original document.
(2) Report to the Nation 2008 (ACFE source: http://www.acfe.com/documents/2008-rttn.pdf)
(3) Report to the Nation 2006 (source ACFE: http://www.acfe.com/documents/2006-rttn.pdf)