The Network in the News

Encourage Whistle-Blowers To Douse Fraud

January 20 2012

by Steve Watkins, Investor’s Business Daily, January 19, 2012

The number of fraud incidents that firms face is rising, according to two recent surveys. Company leaders can take steps to fight the fraud and limit damage if it does occur.

- Pay attention. The incidences and cost of chicanery have increased, according to accounting firm PwC’s recently released 2011 Global Economic Crime Survey. It showed that 45% of those surveyed said their company had experienced scams in the past year. That’s up 10 percentage points in two years. And half said fraud had cost their firm over $100,000. That also was up 10 percentage points. The good news is people are focusing on the problem more, which may explain why more cases are discovered and reported. “I absolutely think there’s been an increase in awareness,” Erik Skramstad, Boston-based U.S. advisory forensics leader at PwC, told IBD.

- Stem the tide. It pays to focus on preventing fraud. If it happens, word spreads fast, thanks to high-tech gadgets. That can hammer a firm’s reputation, Skramstad says. Put prevention programs in place and reinforce them. “It’s better to think about it a little bit every day than a lot every two years,” he said.

- Set the stage. The third quarter of 2011 showed the highest percentage of fraud ever among all incidents reported to Atlanta-based compliance and risk consultant Network Inc., which has compiled a quarterly fraud index for at least seven years. Improve your work environment to limit those occurrences, Network CEO Luis Ramos says. Let employees know you want them to report any sign of wrongdoing. “Make sure they feel valued that they reported it, and stay in communication so they know action is being taken,” he said. “It’s important to communicate from the top that how a company does business is extremely important.”

- Root out the cause. Set up means to detect fraud. Create whistle-blower hotlines and employee help lines, Ramos says. Make sure people know anything they say will be kept confidential, and retaliation against those who report fraud won’t be allowed. The federal government is paying whistle-blowers to come forward. Be proactive, too, by performing risk assessments in the most vulnerable areas, such as cash handling groups. Fraudsters tend to take advantage of weak controls. “Make sure you assess any areas of vulnerability and risk,” Ramos said.

- Speed it up. A typical fraud episode in the U.S. goes on for four years, Ramos says. So companies need to investigate and follow through right away. He helps firms set up rules to escalate a complaint to the top officials so it doesn’t get covered up at a lower level.

- Move it. PwC’s report shows that U.S. firms tend to fire employees for fraud more often than other countries. They get law enforcement involved more often, too. “That shows they take this seriously and they take action,” Skramstad said. “Dismissing employees sends the message that things should be done publicly. It sets the tone.”

- Gather data. Find out what your employees might have seen that looked suspicious. Survey people and ask if they’ve seen certain types of misdeeds. “The more quickly you learn about the issues, the more likely you are to mitigate the damage or catch it before it happens,” Ramos said. “There’s also a deterrent effect. People know you’re watching.”

- Dig deep. Go beyond dealing with the fraudster. Maybe the tone in the office doesn’t discourage fraud, or the firm lacks enough high-level accounting people to catch a problem. “Learn from it and then make the appropriate analysis,” Skramstad said.

0 comments

IN THE NEWS

Top 12 GRC Considerations for Financial Companies in 2012

While regulation is certainly not a new concept to the financial industry, the risks posed by regulatory non-compliance will continue to drive global enterprises to tighten their focus on risk management – literally, the center of GRC – and find the balance between business value and business ethics.