Schemes such as premature revenue recognition—in which techniques such as "bill and hold" are employed to book revenue prior to a actual shipment of goods—are rampant in some industry sectors and are often executed by individuals at a local level. Service lines are vulnerable to fraudulent practices such as collusive payoffs between a customer representative of one company and one or more salespeople.
Executives at the manufacturer were aware of these risks and wanted to learn how they could reduce the company's exposure and lay a foundation for successful growth in the new region.
The answer, said PwC partner Jonny Frank, is to work directly with managers in the field to understand and then mitigate their specific risks. "You need to get to a pretty granular level to figure out how people are going to steal from you," he said.
To that end, PwC deployed a team to the company's emerging market location to develop tools and training designed to transform the manufacturer's frontline personnel into an effective first line of defense. The PwC team developed a multifunctional tool for the company that included a misconduct, risk, and controls register and dashboard.
This tool offers employees an easily accessible desktop reference for significant risks of both internal and external misconduct and explains the controls business-unit personnel are expected to have in place. It also defines risk factors, and offers tips on when those factors are most likely to occur, and provides mechanisms to detect them.
Employee training included education about the different types of fraudulent schemes, the skills of risk identification, and design and evaluation of anti-fraud controls and detection procedures. With the guidance of specially trained facilitators from PwC, participants identified risks, designed controls, practiced attacking their own controls, and created fraud risk indicators and detection procedures.
Impact on client’s business
"Training sessions like these are critical to engage the people on the ground," Frank said. "Local managers and staff are in the best position to detect schemes for fraud and misconduct at the business-unit level."
Today, the company is more confident and prepared for doing business in emerging markets. The manufacturer also determined that the training enhanced the company's operational effectiveness—an added benefit that should be part of any company's fraud prevention strategy according to Frank.
"If people can rip you off—whether it be your own employees or outsiders—usually you're not operating as efficiently and as effectively as you could be," he explained. "And someone's taking advantage of that."