The art of speaking up: How to detect organisational fraud

Fraud is a significant - and potentially very costly - issue for government agencies and companies of all sizes and industries. A common misconception about fraud is that the perpetrator is external to the organisation. However, anyone with access to sensitive information - current or former employees, for example - are an equal threat. 

Internal fraud risk factors

Weak internal controls and a lack of speak-up culture are major enablers of fraud.

Companies with weak internal controls lack the ability to prevent or detect fraud. Some examples of weak internal controls include poor supervision and a lack of documentation processes. This is where a clear separation of duties, implementation of strong internal controls and other safeguards, such as regular internal and external audits, is required. While internal and external audits may detect weak internal controls, they often do not detect fraud.

Some sophisticated payment frauds go beyond changing payment details or using fake invoices. We have actually investigated cases typically involving collusion, where the registered business name and payment details match, however, payment frauds have continued inside the organisation over a number of years.

Stay vigilant - the importance of employee awareness

Employees are often the first line of defence. An effective, confidential, and independent communication method in place for employees to report suspicious activity is critical in detecting organisational fraud. Every year, the Association of Certified Fraud Examiners (ACFE) Report to the Nation reveals that the highest method of detecting fraud is by tip-offs from team members. Fraud detected sooner through employee reports, significantly mitigate financial and reputational damage.

Employees are the ones who are most likely to notice when something is askew, whether it's an unusual transaction, change in behaviour, or discrepancies in financial records. Furthermore, employees are often in a better position to detect fraud than an audit team or other oversight bodies, as they have a more intimate understanding of the organisation's operations and culture. Some of the largest reported frauds in the last ten years have been uncovered by a whistleblower who worked for the company.

The benefits of alert and watchful eyes

There are numerous benefits to employee vigilance in detecting and reporting organisational fraud.

Firstly, by detecting and reporting suspected fraud early, organisations can minimise financial damage. Secondly, employee vigilance can help prevent fraud from happening in the first place. Increased awareness of the signs of fraud and implementation of effective anti-fraud controls in the form of an effective complaints management process, have proven to dispel issues before they occur. For example, an obvious but easy-to-overlook clue and the biggest red flag, is a staff member living beyond their means. Organisations with a strong anti-fraud focus, speak-up culture and effective reporting channels are less likely to be victims of fraud. In fact, organisations that had a strong anti-fraud culture and effective communication channels were 50 per cent less likely to experience fraud.

Employee vigilance can help to improve the reputation of an organisation. If an organisation can detect and prevent fraud, it is less likely to suffer reputational damage. This is particularly important for organisations that operate in highly regulated industries or have high level of public scrutiny.

How to keep your team alert and engaged

Fostering employee vigilance requires a combination of education and communication. Employees need to be educated on the signs of fraud and have confidence in reporting suspicious activity via a reporting channel that protects their anonymity.

Appropriate and effective strategies include the implementation of a confidential hotline, an email address, or a designated contact person. Best practice also includes providing clear instructions on how to report suspicious activity.

Whistleblowing - the ultimate act of courage and loyalty

With fraud so difficult to detect, there is a reliance on employees coming forward to notify of wrongdoing, therefore having a trusted third-party reporting system in place that is impartial and accessible is an invaluable tool to protecting the safety of your people, and the reputation of your business. 

An external whistleblower and complaints management service provides anonymity to staff members thereby increasing the likelihood of concerns or complaints being lodged in a timely anner. The sooner a complaint is raised, the better placed you will be to minimise the risk of undetected fraud, financial loss and reputational damage. 

A high-quality, external whistleblower and complaints management service delivers: 

• Confidentiality, impartiality and anonymity
  
• Accessibility through a 24-hour online reporting, email and phone call-taking service 
• Investigators and call takers with expertise in obtaining quality information from callers 
• Access control 
• Secure data management 
• De-identified reporting capability.

The experts at PKF are available to assist. Contact your local PKF Integrity team member for a confidential discussion. Alternatively, to view a demonstration of PKF's whistleblower protection platform, please click here.