Arrest fraud in its tracks
Date: September 19, 2003
Many firms could do a great deal more to limit their exposure to crime, writes Will Kenyon
More than half of UK companies suffered from economic crime in the past two years, according to the Price Waterhouse Coopers Global Economic Crime Survey 2003.
This usually took the form of misappropriation of cash or other assets by management or employees. The vast majority of companies are confident in their internal controls, yet those same companies admitted in almost half of cases an accident or tip-off had helped in detecting the problem.
These statistics and others in the survey should be of more than academic interest to business leaders and indeed all of us. Contrary to misconception, fraud is never a victimless crime. It costs us dearly as tax payers, insurance policy holders and consumers, and it costs individuals and companies that fall victim millions every year.
Nearly two thirds of companies reported a blow to morale; a third had suffered damage to their reputation and business relationships.
Companies often overlook fraud in their risk management. Even the most sophisticated controls can be circumvented by collusion.Risk management should not stop at prevention: action when fraud strikes can limit the damage and send a strong deterrent message.
No two frauds are alike but there are "dos and don'ts":
• Act quickly to limit the damage, optimise recovery options and preserve evidence. Don't panic or act with haste: a wrong move in the early stages could have damaging consequences later.
• In consultation with HR and lawyers, decide how to handle employees under suspicion. Firing them on the spot may not be the best course of action, but they must not be allowed to destroy evidence.
• Do not do anything that might destroy or compromise evidence. Safeguard documents. Resist the temptation to pull files apart and never write on or mark originals.
• Secure computer equipment used by suspects. Do not turn on or tamper with computers. Handling this sort of evidence requires a specialist.
• Nominate someone to oversee and coordinate the investigation. He or she should be authorised to make strategic decisions as it progresses. Think carefully before involving others close to a suspect.
As many organisations have learned the hard way, it pays to be prepared. An inadequate or ill-considered early response can turn a drama into a crisis, compromising potentially vital evidence, breaching a suspect's rights or otherwise jeopardising the chances of making recoveries or pursuing a successful prosecution.
The key elements of a response plan should be to establish clear reporting lines, with one person in overall charge and with predetermined roles for key individuals or departments, and to give clear guidelines on what can and cannot be done.
While the risk of fraud can never be eradicated, it can be mitigated. Any company can usefully ask itself the following (by no means exhaustive) questions:
• Does your company culture reduce the risk - are employees motivated to behave with integrity or must they simply "make the numbers"? Do bonuses and incentives reward performance without motivating financial manipulation?
• Has your company recently had a top-to-bottom assessment of fraud risk exposure?
• Do you have a formal fraud response plan?
• Do you have formal whistle-blowing procedures?
• Do you have a written code of ethics with guidance on conflicts of interest and clear statements about the consequences of ethical breaches?
• Does top management set the tone and lead by example?
• Have past cases of fraud been adequately dealt with, in particular in terms of sending out the right messages to others within and outside the company?
• Are employees appropriately screened before they join the company?
If the honest answer to any is "No", remedial action should be considered.
Will Kenyon is a partner in Price Waterhouse Coopers Forensic Services
Original article at: http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2003/09/19/ccfraud19.xml&sSheet=/money/2003/09/19/ixcoms.html
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