It’s a fact. When markets constrict – and when growth slows and revenues come under pressure – the risks of corporate fraud and misconduct escalate. Across the workforce, the fear of losing jobs, bonuses and benefits can silently undermine corporate cultures – even those recognised for upholding a high standard of ethics, behaviours and values. For some people, “doing the right thing” is hard to live up to when unpaid bills start piling up on the kitchen table. And when some of the consequences of cutting costs take effect – like weaker enforcement of segregation-of-duties restrictions and fewer resources dedicated to the internal audit and compliance function – risks rise.
Are companies adequately prepared to forestall these events? Or respond immediately when they occur? Or remediate vulnerabilities quickly to minimise the risk of a repeat occurrence?
For many corporate risk managers, compliance officers, internal auditors and general counsels, the answer is often a cautious yes. This confidence, however tenuous, should make sense. After all, for the last several years of increased awareness of these issues, many companies have started implementing programmes and controls to prevent and detect fraudulent financial reporting, misappropriation of assets and criminal conduct in compliance with a rich tapestry of requirements.
When economic conditions decline, companies should proactively consider fraud risks – particularly those most common or unique to their industry and theatres of operation – as part of their anti-fraud programmes rather than waiting for government bodies, auditors, customers or the press to find fraud, waste or abuse.
With proper planning, policies and procedures, and controls, companies can reduce the risk of serious fraud, identify fraud occurrences early and minimise the damage thereof. A detailed fraud risk management programme can also help companies effectively respond to a fraud incident with appropriate investigation and remediation. As always, prevention is better than a cure. And the payoff can be significant.