The global financial downturn has brought workplace fraud into focus, and some observers say this crime rises as companies reduce staff to increase their efficiency
In the corporate world "efficiency" tends to mean only one thing - laying people off, dismantling hierarchies that have become moribund, and creating leaner and meaner organisations.
Most would argue that in these difficult, post-global financial crisis times, seeking efficiencies is a necessary evil. But others argue just the opposite: the thinning out of organisations is likely to cause inefficiencies.
Professor Stephen Ackroyd, a UK academic who has written extensively on organisational misbehaviour, says staff reduction leads to fewer resources being deployed on internal controls and a consequent growth in accounting fraud and other forms of misbehaviour.
Prof Ackroyd, a lecturer in organisational analysis at Lancaster University, was speaking last month at a conference in Sydney entitled Workplace (Mis)behaviour - Cause and Response.
Such misbehaviour occurs mainly when there are fewer people looking, he says, and it is particularly apparent in large, multinational organisations that may have hundreds of subsidiaries scattered across the globe.
"You get a detachment between head office and the smaller operations … which are treated at arm's length. The people at head office don't get any sense of identity with the people in those units."
There is, says Prof Ackroyd, no "continuous hierarchy". Leaders of the smaller units are often given free rein over how they achieve their targets, as long as they are not breaking any laws.
Most telling, he says, is the huge differential between the pay of those at the top and those at the bottom of organisations.
"Those executive teams are getting several hundred times more than the people lower down in their organisations," he says. Employees will rationalise the fraud by arguing that their organisation was not playing fair when it overpaid the bosses.
Prof Ackroyd's analysis concurs with the findings of a global survey conducted last year by PricewaterhouseCoopers (PwC), which examined the prevalence of fraud within 3,000 multinational companies.
The PwC survey found that in organisations where senior executive pay included a performance-based variable component of more than 50 per cent, 36 per cent of respondents reported experiencing fraud. This was a stark contrast with those organisations with no such performance pay, where only 20 per cent reported fraud.
Both the PwC findings and Prof Ackroyd's comments are backed up by experts of forensic accounting in Australia. During the global downturn, forensic accounting - normally one of the more oblique areas of financial services - became a star performer. Forensic units have reported an unprecedented boom in clients suffering fraud in the post-crisis period.
Deloitte Australia says that it has undertaken as much as five times its normal workload in this area over the past 12 to 18 months and that there is no sign of it slacking off. KPMG has also reported a considerable increase in its forensics business - and the need to hire staff to cope with the surge.
While the media tend to concentrate on the proliferation of external, web-based misbehaviour such a identity fraud, cyber-hacking, gang activity and the potential penetration of susceptible social media, internal fraud remains by far the biggest problem for corporate Australia - and the world.
"It is the people within - not to mention the major relationships with customers and suppliers that are struck from close quarters - which count here," says Gary Gill, KPMG's senior forensic expert in Australia.
The lesson for corporations? Look more closely at the internal rot, not at external, unspecified forces supposedly doing you harm.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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