Fraud Threat Creates Opportunities, Too

by Jon Jacobs – January 23, 2009

The financial crisis and recession will stimulate both fraud and employers' efforts to combat it. That spells danger as well as opportunity for financial professionals, says fraud expert Ralph M. Fatigate of BDO Seidman's consulting division.

One danger is that difficult conditions will induce more professionals to deceive – either to stay in a current job or hold onto expensive homes, vehicles and other goodies they can no longer afford. Candidates may have to jump through additional hoops to convince an employer they have nothing to hide.

The opportunity is that improved detection will create job openings – to replace phonies, rogues and crooks who get caught, and to fill new slots for investigators, auditors and compliance staffers.

Fraud Borne of Desperation

"We're seeing some of the best and the brightest committing those crimes," Fatigate, a New York-based managing director at BDO Consulting and former fraud investigator for the New York State Banking Department, told a panel discussion Thursday.

"There are a lot of bright people out there who are going to do a lot of desperate things if they have to," he warned. "And I think financial services is going to be vulnerable."

Not everyone desperate is unemployed. Even those still working "are willing to take chances they wouldn't ordinarily take during good times," he believes. "People will falsify documents to make themselves look good, to keep their jobs. Because if you're not a rainmaker, or are not performing, you're going to be on the chopping block."

Hope For Whistleblowers? Nah

One obvious remedy for internal fraud is to encourage corporate whistleblowers, says Dale Winston, chief executive of New York-based search firm Battalia Winston. "My concern is the whistleblower. From what I read, the typical whistleblower has a hard time getting a new job. And I think we should do something about that."

Other panelists agreed state and federal laws meant to protect corporate whistleblowers are ineffective at helping them avoid retaliation and job loss.

Still, managements are on alert, according to Fatigate. He reports a pickup in requests by corporate clients to investigate suspicions that a senior manager or executive may be committing fraud. He's also convinced more Bernard Madoffs lurk beneath the surface. If Madoff's alleged Ponzi scheme could go undetected for so long, "I say this may be the tip of the iceberg."

Backgrounds Get More Scrutiny

For candidates, the silver lining is this: "There will probably be more positions available as a result of what corporations are doing. It may be an opportunity for young people, and people looking to get back into the job market."

But candidates as well as employees will face greater scrutiny, from both employers and external recruiters. Due diligence investigations and background checks are getting more stringent, Fatigate says.

Forewarned is forearmed: As a candidate, you'll need to be more prepared that ever to explain anything questionable in your background. And whether interviewing or first applying, take more care than ever to fill in the blanks. Present your work history in a way that won't raise red flags.