Is your organization at risk of fraud? The answer is yes. To what extent depends on many factors, and measuring that risk starts with assessing your organization’s culture and controls.
If you’re reading this, you have a vested interest in protecting your organization from fraud. As a board member, owner, executive, or manager, recognizing your role in risk mitigation is the best first step to building a culture of prevention at all levels.
The Impact of “Tone at the Top”
“Tone at the top” is more than business school jargon; it is the responsibility of an entity’s leadership team to act with integrity because the example they set influences behavior all the way to the bottom.
Take for example the VP of a publicly traded beverage distributor who actively engaged in overriding policies around expense reimbursement. It was not long before her middle-management team engaged in the same activity, costing the organization tens of thousands of dollars and a public disclosure regarding their weak controls with the Securities and Exchange Commission. Share price dropped after the filing, signaling a lack of confidence in leadership’s competence and resulting in a larger loss than any liberties taken with expense reimbursement (not to mention legal and investigative costs).
Where management ignores or otherwise lacks honesty and integrity, employees are more likely to follow suit, increasing the risk of fraud and related financial losses.
Leading with Integrity
The converse of this example can be you – a leader who prioritizes organizational ethics and holds their employees accountable to integrity of word and action, adherence to policies and procedures, and a singular goal of protecting the organization from fraud, waste, and abuse.
Building Strong Internal Controls
When you do what you say you’re going to do, and require others to do the same, even when it’s hard, you set the tone for accountability. A pattern of face-to-face conversations and daily oversight that worked earlier in your company’s, agency’s, or department’s development becomes harder and harder to maintain as you and your team grow. Therefore, building systems of internal controls is a necessity. But building them alone isn’t enough – continually monitoring and evaluating their effectiveness is the strongest measure of protection. Why does that matter? Stronger internal controls are associated with lower losses and increased time to detect when fraud, waste, and abuse is occurring. The sooner the bleeding stops, the stronger your bottom line.
Stay Tuned
This is the first article in our “Leader’s Guide to Fraud Prevention” series, designed to provide ongoing guidance on simple, effective actions leadership can take to prevent fraud, waste, and abuse. Future articles will explore everything from emerging fraud trends to critical risk areas like cybersecurity, as well as entity-wide recommendations for strengthening controls. By making a few strategic improvements to your fraud prevention environment, your organization can build a stronger foundation for long-term financial success.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
