Fraud and Corruption in a Recession

When the waters run low you start to hit the rocks.

Professional sports leagues, restaurants, bars, and more have suspended, canceled, or shuttered in response to Covid-19. The economic effects are being acutely felt on Wall Street. How do such unforeseen circumstances affect companies in terms of fraud and integrity?

Based off the behaviors we saw after the SARS and H5N1 outbreaks we know companies and their employees will continue feeling increasing levels of uncertainty. The economic downturn is changing moment by moment and will intrinsically change the nature and scale of fraud and integrity risks that all organizations face in the coming years. The speed at which these changes are occurring is such that more people will feel real pressure to ‘cross the line’ in terms of operations, reporting, and financial honesty and the falling economic tide will likely uncover rocks that have been hidden during economically productive times.

The good news is that effective fraud risk management can be assessed and implemented quickly.

So how does an organization execute a fraud and integrity risk strategy?

Those responsible for compliance and internal controls need to consider several questions in order to ensure that a sound strategy is in place: 

• Tone at the Top – Is senior management delivering the right tone at the top and is it permeating down through the organization? Does the company compensation structure, including bonus policies, support an ethical attitude, or undermine it? 
  
  
• Governance – Do employees at all levels have easy access to materials, which provide sound strategic oversight of fraud risks, controls, and prevention methods?
  
  
• Fraud and integrity policies - Does the company have the right policies and practices in place (addressing code of conduct, fraud policy, whistle blowing, conflicts of interest, fraud response, etc.) and, are they adequately publicized, promoted, and enforced both internally and externally?
  
  
• Risk assessment – What are the key fraud and integrity risks in the business? Has anyone thought through the fraud and integrity risks arising from the people we do business with, i.e. our sales agents, distributors, joint venture partners, and supply chain?
  
  
• Communication and training – Do all employees receive proper communication and training?
  
  
• Hiring and promotion – Does the company perform sufficient background checks on individuals they recruit or promote?
  
  
• Control linkage and evaluation – Is the company using best practices for unpredictable controls, including spot checks and data mining, to help both detect and deter potential fraudsters? Do they have a reliable, trusted whistleblowing program?
  
  
• Management oversight - Does senior management monitor fraud and corruption threats and deliver action steps where needed?
  
  
• Fraud and corruption response – Is the company addressing allegations of fraud and corruption when they arise? Are they conducting thorough, independent investigations and taking action where appropriate? Are they ensuring remediation suggestions from the investigation are implemented across the company?

The good news is that effective fraud risk management more than pays for itself. Companies across industry sectors are desperate to find ways to reduce cost. Attacking fraud, waste, and abuse offers a huge cost savings opportunity for a relatively low investment. It’s the old adage… you can pay now or you can pay later. It’s better to prepare strategically now than pay for the chaos later.