Big Frauds

A case of 'Grande Frode' at BT Italy



If you review the Transparency International (TI) Corruption Perceptions Index 2016, you’ll find that Italy ranks 60th out of 176 countries. Interestingly, that places it in a tie with Cuba and one place below Romania.

I tend to think of Italy romantically — with images of museums, gondolas and pizzerias popping to mind. However, Italy has been a hotbed of fraud and corruption since before the Renaissance. In January 2017, British Telecom (BT) announced that it was the victim of a 530 million pounds ($680 million) accounting fraud/embezzlement, which occurred at its BT Italy subsidiary. BT filed criminal charges last March against several former employees and executives. (See Exclusive: BT files criminal complaint over Italy accounting scandal, by Emilio Parodi, Reuters, April 21, 2017.) In this column, I’ll examine the BT Italy fraud and emphasize some key lessons.

Fake sales and bullying

The “Project Crane” investigation into alleged bullying and other inappropriate behavior of BT Italy executives uncovered the multi-year accounting fraud. (See the Reuters’ article by Parodi.) In October 2016, BT estimated the fraud to be 145 million pounds. That number grew to 530 million pounds in just four months, and BT would lose more than 8 billion pounds in market capitalization as its shares entered a free fall. (See Why BT’s stock just plunged 21% and wiped $10 billion off its market cap, by Sara Sjolin, MarketWatch, Jan. 24, 2017.)

 


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By DELEE
A timely reminder of elements to consider when undertaking fraud risk assessments as well as the difficulties of conducting fraud investigations when one hand may be tied behind your back.