Constant vigilance needed for fraud and corruption
Posted 09 May 16 by Guy Underwood
The findings of the Association of Certified Fraud Examiners (ACFE) in their “Report to the Nations on Occupational Fraud and Abuse” has again emphasised the need for directors, business owners and management to be vigilant when it comes to fraud and corruption.
Some of the more notable finding in the report from those surveyed included:
- organisations lose 5% of revenues in a given year as a result of fraud;
- asset misappropriation (cash, inventory and/or plant and machinery) was the most common type of fraud; and
- in over 94% of cases the offenders attempted to conceal the fraud by creating and altering documents.
The findings also revealed that there was a correlation between the period an offender had worked at an organisation and the size of the fraud. Indeed, the size of fraud losses, were found to be significantly higher the longer the offender had been employed with the victim organisation.
Common weaknesses we have found when undertaking fraud investigations, and some of which were also observations made in the ACFE report, include:
- insufficient segregation of duties;
- lack of management review;
- poor record keeping practices;
- failure to sight original documents; and
- “trust” being a main contributor to a breakdown in process - with trust being placed in employees and management without sufficient controls to prevent or detect fraud if that trust is breached.
It is therefore paramount that directors, business owners and management alike set the appropriate “tone” of their respective organisation. Firstly, through the implementation of policies which promote the values of the organisation and also provide effective internal controls and governance. Secondly, by demonstrating an adherence to those policies and appropriately investigating any ethical concerns raised by employees or suppliers. The “tone” will infiltrate through an organisation.
The ACFE report also revealed that tips were the most common detection method of fraud. We believe that to further enhance good governance, due consideration should be given by directors, business owners and management in implementing mechanisms that will provide employees and suppliers an avenue to raise ethical concerns without fear of it negatively impacting either their employment or contractual arrangements. One mechanism that has been shown to be effective is an independently run Whistleblower Hotline service that allows ethical concerns to be raised anonymously and/or confidentially via the telephone, email or post.