Blowing the Whistle on Fraud

Organizations continue to fight rising fraud through strong ethics and fraud detection programs.

The average loss per company in the retail, wholesale, and distribution industries over the past three years equals US $3.3 million, or 41 percent of annual revenues, according to Kroll’s 2008–2009 Global Fraud Report. Furthermore, the report shows that 86 percent of organizations have suffered fraud loss over the past three years and 87 percent have experienced increased exposure to fraud.

Through a case study, the report shares how a leading distribution company set out to combat fraud by implementing an “integrity program” to demonstrate an investment in security provisions, practices, and procedures. Part of the program included completing a risk-ranking exercise where high-risk areas were identified and the company’s investigators began work on closing the gaps by monitoring and measuring the corrective actions taken.The report also emphasizes that an organization’s tone at the top is critical in any fraud deterrent program’s success because the message of ethical transparency and desired attitudes flows from the top down. Additionally, a whistleblower hotline or some other anonymous method of reporting fraud suspicions, as well as a policy that encourages people to report suspected cases, is a powerful tool in discovering — and fighting — fraud. In fact, a fraud study conducted by The Economist Intelligence Unit shows that more companies will be investing in anti-fraud measures, especially financial controls (52 to 57 percent) and management controls (45 to 55 percent), to help combat fraud.

“Drying out Fraud,” published in the August 2005 issue of Internal Auditor magazine, further demonstrates the importance of an ethical tone at the top and whistleblower hotline by giving a real-life example of how an anonymous tip alerts auditors to manager-level employee theft.

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