Organizations face annual losses in the trillions due to fraud. Staff training programs and internal reporting policies, key elements for preventing and fighting corporate fraud

Opinion article by Denisa Simion, Manager, and Elton Mata, Manager, Financial Advisory, Corporate Forensic Services, Deloitte Romania

Although many organizations tend to see fraud incidents as rather unlikely, usually based on their trust in both employees and business partners, the reality is that such events cannot be anticipated and properly handled without a prevention strategy that includes early detection and reporting protocols, and a strong incident response plan.

A recent survey by the Association of Certified Fraud Examiners (ACFE) based on an extensive dataset comprising over 2,000 real cases of fraud that had repercussions for organizations across 133 countries and 23 industries revealed that occupational fraud causes annual losses of over USD 4.7 trillion globally. Moreover, the survey underscores that a typical fraud case lasts 12 months before detection and organizations lose approximately 5% of revenue to fraud each year, the average loss per case amounting to approximately USD 1,783,000. In terms of fraud detection, tips were identified as the most common method (42%) for identifying risk situations, which emphasizes the significance of internal reporting mechanisms.

As organizations are acknowledging the need to foster their fraud prevention measures, important questions arise.

1. How can organizations cultivate a culture of awareness and accountability to effectively fight fraud?

Misconduct and professional negligence can significantly damage the security of every organization, and any single inappropriate event can impact a business and destabilize it.

Training sessions are fundamental to every antifraud corporate program and they are key elements to preventing operational risks and to shaping a resilient workforce, capable of spotting red flags and fraudulent activities, as well as to report them. In order to safeguard the company’s business and reputation, an antifraud training program should include, besides general aspects, specific realities of every geography, industry and organization. Moreover, in order to emphasize the importance of the training program completed, it could be practical that all employees sign an annual statement acknowledging their understanding of and commitment to the internal fraud prevention program, which serves as a collective commitment to ethical conduct.

In addition to the general all-employee antifraud training program, organizations should consider implementing a specialized training program for top management, addressing department-specific warning signs, prevention methods, and detection strategies. By enhancing the capabilities of managerial staff, the organization provides an additional layer of defense against potential risks.

2. What are the critical aspects that companies should focus on in their fraud prevention efforts?

In conjunction with internal fraud awareness cultivated through dedicated training sessions, whistleblowing stands as a powerful instrument in the realm of organizational ethics, fostering a balanced work environment and serving as a pivotal force against fraud and corruption.

According to the American Anti-Corruption Institute (AACI), whistleblowing is a “deliberate non-obligatory act of disclosure”, made under the provisions of the law by an individual or a group of individuals and “unveiling material illegality or other wrongdoing, whether actual, suspected, or anticipated” to an internal or external authorized entity that is able to rectify the wrongdoing.

The full-scale adoption of the new EU Directive 2019/1937 on the protection of persons who report breaches of union law (whistleblowing) presents a contemporary challenge for member states, as well as public and private institutions. Recognized as one of the most effective means to detect and prevent corruption and malpractices, whistleblowing necessitates the protection of whistleblowers’ anonymity. This safeguard not only prevents retaliatory actions against those reporting wrongdoings, but also fosters trust that their voices will be heard.

Establishing internal controls, exposing wrongdoing, building prevention and fostering accountability are key-principles of operational safety. That is why whistleblowers play an important role in bringing forth vital information that might otherwise remain undisclosed: the information shared in confidence can be critical evidence that can help unravel complex fraud schemes, expose financial irregularities, and unethical practices. On the other hand, the fear of exposure discourages individuals from engaging in corrupt practices, and contributes to an organizational culture based on ethics and accountability.

When a disclosure is submitted through the proper channels and directed to the independent authority within the organization, immediate action can be taken to prevent or reduce risks. This way, whistleblowing prompts organizations to cultivate a culture of responsibility and integrity and compel every employee to make their best efforts to live up to ethical standards.

Building awareness and implementing solid whistleblowing tools – key steps for deterring and preventing organizational fraud

It is good to detect fraud in early stages, but it is even better to be one step ahead and to prevent it. By incorporating continuous awareness trainings and specialized training for top management teams, with a strong whistleblowing system in place, organizations can foster an environment where employees are empowered to actively contribute to fraud prevention and detection, while upholding the values ​​of integrity and increasing transparency and collaboration within the organization and with other market players.