A recent survey from Deloitte shows that management leads the way when it comes to committing workplace fraud. It’s a game of “follow the leader” that you don’t want happening in your workplace. Under the circumstances, it’s not surprising that employee fraud is on the rise. If management does it, what message does that send to employees?
Some people blame the increase on the recession and the desperation of employees, but there’s more to it. Not surprising is the fact that the Deloitte survey recognized discrepancies between the way management perceives an organization’s control of fraud risk and the way it is actually controlled.
In November, Deloitte released the findings from its first Internal Audit Fraud Survey. The survey was conducted to learn more about the ways companies are impacted by fraud and the role of the internal audit. Although this survey was conducted in the UK, the findings and suggestions are applicable globally. A press release from Deloitte states:
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“The economic downturn of the last two years has brought a number of high profile frauds to the surface and in doing so has created a heightened awareness of fraud risk. This, along with an increasing pressure to improve the bottom line, has focused the minds of senior executives on how their businesses might be vulnerable to fraud and whether or not they are sufficiently protected to prevent both the risks of financial loss and reputational damage.”
Here’s what they found:
1. Lacking Internal Controls
Internal controls are necessary to prevent and detect fraud. The survey respondents made it clear that they perceived companies to be more vulnerable to fraud because of ineffective internal controls. There needs to be sufficient resources allocated to preventing workplace fraud. Talking about fraud just doesn’t cut it. With the recession still being felt in many areas, smaller companies find it increasingly challenging to come up with the resources to implement controls and bring the right people on board. However, another question these companies must ask is if they can afford to be negligent and continue on without addressing fraud risks, because fraud costs a lot of money too.
2. Finding the Right People
You need people in your organization who understand fraud and how it works. You won’t be able to address fraud risks if you don’t know what you’re looking for. Another thing to take into consideration is that the survey discovered that top level management promotes fraud prevention, but their actions seem to be lacking when it comes to backing up their words. Organizations need leaders who take fraud seriously and do more than talk about it. The fraud survey identifies that fact that organizations:
“Recognize that they do not have sufficient numbers of trained staff to be able to scale up when circumstances demand and investigations arise- though many functions provide additional training to staff in an effort to overcome this.”
3. No Risk Assessment
The survey from Deloitte reported an alarming number of organizations fail to conduct risk assessments. According to the survey:
“57% said their Internal Audit department does not perform fraud risk assessment exercises to consider, identify and prioritize the risk of fraud.”
A risk assessment or internal audit is the number one way for companies to evaluate fraud risks- so why aren’t the audits happening? Fraud risks change, which means audits need to occur on a regular basis. Fraud risks exist within your organization, making it necessary to evaluate internal and external fraud risks for ultimate prevention.