Looking at internal control and fraud issues from big data

With the wide application of technology and digitalization, the behavior of occupational encroachment is intelligent and concealed. It is more and more common for technical personnel to use technology to covertly occupy the company’s property. It is more and more concealed and difficult to be discovered.

In recent years, with the rapid development of domestic high-speed economy and the development of foreign-related strategies, a large number of outstanding private enterprises have emerged, with retail, trade, logistics, real estate, and the Internet leading the way. However, at the same time, we have seen that the responsibility for corporate compliance is also increasing. The internal fraud phenomenon has been repeatedly banned, which seriously threatens the safety of production and operation of enterprises. Even the leading enterprises in the industry have not been spared.

In August 2018, Jingdong issued an internal anti-corruption announcement, listing 16 typical cases of corruption within the group; in November, 58 high-ranking officials in the same city were detained by the police for corruption; in December, the former president of Ali University Entertainment Group, Yang Weidong, was involved in a major economy. The case was investigated by the police; in January 2019, Dajiang Company admitted that there were major frauds within the company, and conservative estimates have caused at least 1 billion yuan in losses… Old listed companies such as Enron, Xerox, WorldCom, Global A series of major enterprises such as telecommunications and Yinguangxia, although the forms of fraud cases are different, all reflect the huge risks brought about by imperfect internal control or poor implementation.

It can be said that corporate fraud is a long-lasting topic. “There is a strong control, a weak control, a chaos without control, and a loss without control.”

The relationship between internal control and corporate fraud

So far, most companies have been characterized by “lag” in dealing with fraud problems, that is, after finding fraud problems or major losses, emergency relief measures are taken, but it is often too late, even if Recovering losses to a certain extent will also have an adverse impact on the external reputation of the company and the internal integrity culture. The sensitivity of the stock company’s stock price fluctuations need not be described. (In 2015, Japan’s century-old enterprise Toshiba’s huge financial fraud scandal shocked the world and even triggered global Questioning the Japanese financial system).

Internal control is an important means for enterprises to prevent fraud. It is regarded as the normal operation mechanism of enterprise governance (hereinafter referred to as “internal control mechanism”), which can ensure the efficiency of business operations, the reliability of financial reports and laws and regulations to the greatest extent. Followability. At the same time, through the internal control mechanism, a self-discipline system that inspects, restricts and adjusts internal business activities within the enterprise is formed. The burden of anti-fraud is no longer placed on the board of directors and senior management, but the business process is broken into the business. The “immune system” suppresses the “bacteria” of fraud in the cradle.

According to statistics, in 2018, a total of 870 cases of occupational encroachment were pronounced in seven key provinces and cities (Northern Guangzhou-Shenzhen Sushenjin). The number of defendants was as high as 1,185, and the total number of enterprises occupied by posts was as high as 1.044 billion yuan. The encroachment amount was 1.207 million yuan, and the maximum amount reached 72.582 million yuan.

In the “2018 Research Report on the Crimes of Corporate Employees’ Encroachment on Crimes (瀚 Law Firm)”, the degree of perfection of enterprise management is inversely proportional to the number of cases of occupational encroachment. Among the victims of statistical samples, the occupation of private enterprises occurs. There are many cases. First, the base of private enterprises is relatively large. Second, private enterprises are relatively incomplete or inadequately implemented, financial management is chaotic, and there is no independent supervision department. At the same time, it also has less incorruptible cultural education with private enterprises and a weaker sense of legal awareness among employees; thirdly, in the event of employee encroachment on company property, private enterprises have the strongest willingness to report relief through the judicial organs, and the loss of private entrepreneurs is lost. The will to fight crime is the strongest.

There are relatively few cases of state-owned enterprises. First, the state-owned enterprise management system is relatively sound, and there are supervisory institutions such as the Commission for Discipline Inspection and Supervision, and there is a normal clean government education mechanism. Second, in the event of the occupation of corporate property by state employees in state-owned enterprises, many of them will constitute corruption crimes, not crimes of occupational embezzlement, and the crime of occupational embezzlement in state-owned enterprises. Only those who engage in “labor services” in state-owned enterprises (ie non-state workers) ), such as sales staff, ticket sellers, industrious personnel, etc., the relative scope is small.

The number of cases of occupational encroachment in foreign-funded enterprises is relatively low. In addition to the fact that foreign companies are mostly multinational corporations and the relevant management mechanisms are relatively sound, foreign companies are relatively weak in their willingness to transfer to the judicial organs for the investigation and punishment of their assets.

The cause of corporate fraud

So far, the theory of the causes of fraud, such as the iceberg theory, the triangle theory, the GONE theory, etc., are not interpreted here one by one. It is now recognized that G.Jack.Bologna and others have developed on the basis of GONE theory. The “risk factor of corporate fraud” said. It divides the risk factor of fraud into individual risk factors and general risk factors. Individual risk factors refer to factors that vary from person to person and outside the scope of organizational control, such as moral quality and motivation; general risk factors are factors controlled by the organization or entity, including opportunities for fraud and the probability of fraud being discovered. And the nature and extent of the fraud of the fraudster after the fraud was discovered. Fraud occurs when the general risk factor is combined with individual risk factors and is considered beneficial by the fraudster.

Statistics show that there are many incentives for corporate fraudsters to conduct corporate fraud, but most of them are related to strong economic needs. Those under the age of 30 have the highest proportion of gambling. With the increase of age, the proportion of gambling has gradually decreased, and the proportion of high consumption and debt repayment has gradually increased. The proportion of daily consumption is the highest at 31 to 40 years old and the lowest at 41 to 50 years old. The proportion of job encroachment for investment is relatively stable under 40 years old, and the highest at 41-50 years old.

According to the data of 1124 cases validated by Xingyi Law Firm’s “2018 Annual Research Report on Corporate Staff Engagement Crime Big Data”, the most cases of job encroachment occurred in asset management, accounting for 41.46%, and its behavior was to steal and defraud. The main property is inventories and monetary funds (from the perspective of industry, manufacturing and retail and wholesale industries are high-risk areas of occupational encroachment, accounting for 31.56% and 26.91% respectively, respectively. In the post, sales, management and warehousing positions are ranked in the top three; in the wholesale and retail industry, department stores, supermarkets, home shopping malls, etc. are more frequently issued. In this industry, sales, management and financial positions account for the most occupations.

The occupation of the occupation in the expenditure link accounted for 29% of the total, and its behavior was mainly based on fictitious expenditure and management loopholes. The property invaded by the property was mainly based on monetary funds. The account encroachment in the income link accounted for 29.54% of the total, and its behavior was basically concealed income, and the property that was invaded was mostly accounts receivable.

Compared with other types of fraud, the means of occupying a crime is simple and direct, and the perpetrators tend to commit crimes many times, and the company’s property suffers serious losses.

At the same time, with the wide application of technology and digitalization, the behavior of occupational occupation has become intelligent and concealed. It is more and more common for technical personnel to use technology to conceal encroachment on the company’s property, and such criminal means are more subtle. Hard to find. For example, the director of a banking technology department used his position to facilitate the installation of a “computer virus program” into a core system application server of a bank’s head office, and through the computer virus program to make ATMs across the ATM machine between 2016 and 2018. The transaction can not be counted in the account, illegally possessing 7.179 million yuan of bank funds.

Three criteria for establishing an internal control mechanism

people oriented. For the enterprise, the employee’s mind is like a black box, it is difficult to identify the various complex motives, but it does not mean that it cannot be done. The measures that can be taken are: creating a favorable corporate culture environment. The construction of a clean culture alone may only put pressure on employees. It should also focus on treating employees with openness, keeping communication channels open, and establishing a window for employees to unpack; The performance appraisal and reward and punishment system, pay attention to avoid the emergence of unfairness; pay attention to employees with lower salary and poor living standards, if there are conditions to set up some employee financing programs, can effectively prevent sudden corporate fraud.

Take the system as the key link. Stable rules and regulations are an important prerequisite for companies to establish fraud “firewalls.” The US Tredeway Committee (Treadway) proposed that corporate anti-fraud should establish a four-level mechanism, including high-level management concepts, internal control in the business process, internal audit, and external independent audit.

First of all, the upper management must have the ability to identify and judge various factors that induce fraud, and have the awareness of risk identification; for professional managers, the index pressure and incentive measures should be reasonable and appropriate.

Secondly, enterprises should combine their own industry and production and management characteristics, the size of the enterprise, the growth stage of the enterprise, and the business strategy to clarify key positions and enable mutual supervision and mutual restraint between incompatible positions and positions. Effective checks and balances. For listed companies, the role of the independent directors and supervisory boards of the company can also be fully utilized to form an internal self-regulatory system.

For example, the survey shows that many companies have not followed the principle of independent sales and separation of positions in sales, delivery, payment, etc. This is the reason for the high incidence of fraud in sales. Taking the case of Song’s occupation as an example, as the person in charge of the branch, it is necessary to coordinate the overall operation and management of the company, and also be responsible for the negotiation and signing of specific business, and also responsible for collecting funds, etc., one person has several positions. During his tenure, Song personally used his personal account to collect income after the receipt of money, and concealed income in the middle of the process to conceal the enterprise property of millions of yuan.

Guided by ethical principles. The system of any enterprise can not be perfected and perfect, and employees as “social economic people”, there must be some inconsistencies between the pursuit of self-value and self-utility, and the enterprise system, but the system has loopholes. When the time and system are not specified, what to do depends on the employee’s own value choice. Through signing commitments, promulgating corporate behavior and civilized regulations, establishing management styles and role models, and strengthening legal training for employees, we will eliminate the negative impact of moral hazard as much as possible, guide employees’ correct values, and reduce the possibility of fraud.

Establishing a high standard of ethical behavior is also a constraint and warning to employees. In the past, Chinese companies have adhered to the concept of “water to clear without fish” in governance, but if the small fraud of employees is not controlled, then the employees again The amount and probability of fraud will increase rapidly, and under the demonstration effect of these employees, other employees will follow up quickly. The so-called ant colony is small and can smash thousands of miles.

As far as enterprises are concerned, it is necessary to “open the territory and open up the soil”, and to “guard the city and protect the people”. The operating cost is huge. If the fraud is rectified as passive, the opportunity cost and relief cost will further increase. Will dampen employee morale and damage corporate brand. In contrast, the internal control work of pre-positioning can not only prepare for the rain, but also prevent the micro-duration, and can help the corporate governance reach a new height.