A Cornerstone of Fraud Prevention Efforts in A company
According to ACFE’s 2018 Report to The Nation, each company loses an average of 5% from its annual revenue. In response to the expensive costs, many companies have implemented strong internal control and prevention program (e.g., whistleblowing system) to safeguard the companies. However, those efforts will be left in vain without a sound ethical corporate culture.
Corporate culture plays a significant role
Bouwman in his book The Role of Corporate Culture In Mergers & Acquisitions mentions that corporate culture represents the personality of an organization and its shared beliefs, values, behaviors, the way things are done, and it is explicit and implicit rules.
The Centre for Audit Control in their report on Deterring and Detecting Financial Reporting Fraud 2010 states that corporate culture influences all three sides of the fraud triangle. A sound ethical corporate culture creates an expectation to do what is right, by that minimizing the propensity to rationalize fraudulent actions.
In other words, the corporate culture serves as the backbone for the implementation of fraud prevention efforts. Should the corporate culture get rotten, all the efforts become fruitless.
How ethical culture created?
The ethical corporate culture is highly influenced by the leaders’ values, strategies, examples, and actions. Let’s say, an autocratic leader through his/her management creates fear of bad reporting, bad news, poor training, unfair rewards, and poor internal communication. Those things can result in a weak corporate culture. Even a sophisticated whistleblowing system in this kind of culture will become redundant for none of the employees cares or feel psychologically safe enough to raise the concern.
Therefore, it is critical that a leader paves the way and leads the company’s stakeholder to develop a sound ethical culture. Here some efforts that the leader can do to develop the sound ethical one.
– Set the tone from the top by creating a credo that states clearly what the company stands for
– Set ethical standard that establishes guidelines for ethical attitude standard in the organization
– Develop an anti-fraud training program
– Develop and establish procedure within the company of how an employee can make a report, a guarantee that they will be protected, how the report will be handled, and how they will be kept updated about the outcomes.
– Implement the ‘punishment and rewards’ rule
– Walk the talk by incorporating ethics to the company strategy
Company with the sound ethical culture whereby strong environments of fraud control becomes the norm tends to create loyalty among employees. In result, the effective efforts to combat the fraud are on the way.