Reports of organisational fraud are levelling off, despite recession’s glut of commercial crime

Luis Ramos, CEO of The Network

Despite the global recession highlighting an alarming rise in the number of major frauds worldwide, recent findings by information lifecycle management company The Network and BDO Consulting indicate that fraud reporting may be leveling. Indeed, it may even slightly declining for some organisations.

According to The Network’s Quarterly Corporate Fraud Index, fraud theft reports in the third quarter of 2009, accounted for 20.2% of all whistleblowing hotline activity within organisations worldwide, down from 21% the first quarter of last year. That 21% percent reflected a personal best – or in this case, worst – in terms of fraud-related reporting. The 2009 Corporate Governance and Compliance Hotline Benchmarking Report indicated that fraud across all industries (in the form of such issues as corruption, misuse of corporate assets or information, conflicts of interest, FCPA violations, etc.) from 10.9% in the first quarter of 2006 to 21% in the first quarter of 2009. Where this climb in rates suggested a link between the economic downtown and fraud in the workplace, the leveling off of rates suggests a move toward economic recovery.Companies that weather the financial storm will probably be those that take proactive steps to reduce employee fraud and, at the same time, build more ethical workplace cultures. For most companies, there are specific, actionable steps that will prevent fraud before it happens.  

First, educate employees on ethics. Organisations will benefit from a culture of ethics where their employees know fraud will not be tolerated or accepted. Ethical companies provide employees with the resources and the tools they need to do the right thing when it comes to their own actions and to speak out against unethical activity by others when they see it. This includes readily-accessible hotline programmes, user-friendly codes of conduct and ethics training that’s relevant to their employees and the kinds of issues they face on the job.  

Second, maintain an environment of integrity. Tough financial times often result in massive layoffs leaving the existing employees with more work, lower morale and the propensity to participate in behaviors that they previously might not have considered. Tone at the top (and the middle) helps to communicate the message that ethics matters, not only for the organisation at large, but for the individual employee as well. Leaders need to demonstrate their commitment to an ethical workplace on a regular basis and consistently exhibit the kind of behavioral expectations they want to instill in their employees.

Third, find and stop fraud early. Employees who steal even small amounts of money or goods can be a harbinger of things to come. Proactive companies make a habit of frequently reviewing their compliance programme reports to identify trends. Early detection identifies small issues and allows organisations to take actionable steps before they become less manageable problems.

Finally, focus on investigations. Effective reporting systems can help keep organisations off the front page and in compliance with legal and statutory requirements, but giving employees a means for speaking up is only half of the equation. The other half is thoroughly addressing – and when necessary, fully investigating – allegations once they have been reported. Organisations that define a process for investigating suspected perpetrators help to protect themselves and their employees from the devastating effects that fraud and other misconduct can exact.

Are Ethical Organisations Recession-Proof?They are certainly recession-resistant. The truth is most employees want to work for a company that observes a set of ethical values. They want to work for leaders who have a vision and managers they respect. And they want clear standards against which they can gauge their own behavior and that of others.While it’s typically the unethical culture that steals the headlines, research shows that companies that hire ethical leaders and embrace ethical practices can realize significant dividends, not only in terms of a more unified workforce, but also in terms of real dollars. In fact, Ethisphere magazine found that the average stock growth percentile of public companies that were included in their list of the World’s Most Ethical Companies have consistently outperformed the S&P 500 index over the past five years. Now, more than ever, as the economy begins to level-set, it pays to be ethical.

*Within the next few weeks, The Network will announce its Q4 2009 fraud reporting findings. For more information regarding the Quarterly Corporate Fraud Index, visit www.tnwinc.com or email corporatefraudindex@reportline.net.