fraud prevention

What's Discouraging the Reporting of Fraud?

Dec 8th 2017
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For accountants, it can be difficult to discuss fraud prevention without talking about retaliation against those who report the crime. And that’s precisely what a good chunk of the new report from the Anti-Fraud Collaboration addresses.

Formed in October 2010, the collaboration is a joint venture between the Center for Audit Quality, Financial Executives International, the National Association of Corporate Directors and the Institute of Internal Auditors. Its goal is to promote the deterrence and detection of financial reporting fraud.

However, it’s difficult to deter and detect if people who want to deter and detect are afraid to say something, right? Hence that's the reason the collaboration developed the series of roundtables regarding retaliation and how to prevent it.

Here’s a snapshot of the discussions:

What Discourages the Reporting of Fraud?

A whole variety of things discourages the reporting of fraud, that’s what — and most of them involve management. Managerial attitude is key. That means managers should want and need to know about wrongdoing, don’t use intimidating styles, and have formal policies in place that not only encourage reporting of fraud but prevent retaliation against the employee who reports it. Other issues that arise include a perception of team loyalty that’s so excessive it discourages reporting of misdeeds. Ditto for the perception that nothing will be done.

Problems With the Investigation Process

Simply making the report isn’t the end of potential problems. Employees may be unaware of how the investigation process works and how they’ll be involved, for fear that they’ll be identified directly or indirectly, and for fear that the real perpetrator, i.e. upper management, won’t be held accountable because there’s no paper trail.

Consequences of Reporting

Retaliation of one sort or another is common, including job termination. The whistleblower’s future reputation also is at stake, as is the impact on others in the organization. What’s more, what if there really isn’t any wrongdoing? That will have senior managers wondering why an issue was created when one didn’t exist. Uh-oh.

How to thwart all the hand-wringing over blowing the whistle starts — again — at the top. There should be a strong corporate culture that encourages employees to step up to the plate, prevents retaliation, trains employees in what to look for, encourages hiring ethical employees, and rewards or incentivizes whistleblowers.

“No organization is immune from the risk of financial reporting fraud and in every company there are factors that discourage reporting of suspected misconduct,” the report concludes.

And that just about says it all, doesn’t it?