Fraud in times of Economic Stress

In a previous blog entry I mentioned to you that auditors warn that in times of economic uncertainty and downturn, auditors see an increase in cases of fraud. Why is that? I think it is because people, in an economic downturn, are even more willing to take additional risks to cut ethical corners and come up with schemes to defraud government agencies. You might recall the Association of Government Accountants' website estimates that 7% of the stimulus moneys, almost $60 billion dollars, will be lost to fraud and waste.

So it should come as no surprise to us that we read that over 100,000 people of the 1.5 million folks who have applied for the first time home owner 8,000 government tax credits have already come up with schemes to defraud the government fund accounts. Here is one way in which some have taken the risk to try to defraud the funds: simply lie about the age of the applicant. J. Russell George, Treasury Inspector General for tax administration, reported recently to Congress that 580 people seeking $4 million were under the age of 18. The youngest recipient was only 4 years old.

Linda Stiff, the IRS's deputy commissioner for services and enforcement, put it aptly when she said to the Congress folks, "any time that there is an opportunity to receive cash back, it tends to attract people that might have the intent to defraud the government." Does this news upset you as much as it does me?

I read with amusement that some governmental agencies are cutting their auditors in order to save money during the economic downturn. In a time of economic downturn, that's when you need more auditors, not less.