Proactive approach to fighting fraud needed
, February 17, 2013
By Simon Padgett
It is estimated that a typical organization loses approximately 5 per cent of its revenues to fraud each year. Applied to the estimated 2011 Gross World Product, this figure translates to a potential projected global fraud loss of more than $3.5 trillion.
It is also interesting to note that more than one-fifth of reported fraud cases caused losses of more than $1 million.
According to the recent ACFE Report to the Nation on Occupational Fraud – fraud is more likely to be both prevented and detected by a tip than by any other method. The majority of tips reporting fraud come from employees of the victim organization. Tip offs can be channelled through a whistle blowing reporting mechanism.
A whistle blowing hotline is a toll free phone number to which individuals can call and report suspicious activity or fraud. The hotline calls should be handled by a person or entity independent to the organization to receive tips from both internal and external sources. The caller does not have to reveal his or her identity. Providing individuals with a whistle blowing hotline number to report suspicious activity is a critical part of an anti-fraud program and leading organizations actively encourage their employees to report suspicious activity, as well as enact and emphasize an anti-retaliation policy.
A comprehensive whistle-blowing reporting mechanism should also include email and web-based reporting capabilities.
The most successful whistle-blowing reporting mechanisms should:
• Be externally managed
• Offer a toll free telephone reporting channel
• Offer anonymity to the informant
• Be available 24/7 and
• Offer confidentiality.
In 2002, Cynthia Cooper blew the whistle on financial statement fraud at Worldcom and Sherron Watkins exposed a corporate financial scandal at Enron. Both were jointly named Time's People of the Year in 2002 for reporting two of the world’s largest frauds.
The cost of occupational fraud — both financially and to an organization’s reputation — can be acutely damaging.
With nearly half of victim organizations unable to recover their losses, proactive measures to prevent fraud are critical.
Management should continually assess the organization’s specific fraud risks and evaluate its fraud prevention programs in light of those risks. A fundamental element of such a program is the Whistle Blowing Hotline.
• Simon Padgett heads the Forensic Services Division for Protiviti Member Firm (Middle East region) and is an expert in forensic investigations with a particular focus on fraud risk management.