Thinking about the ways fraud and other employee misconduct could damage your company can be unpleasant work, but it's essential. Thinking about these potential problems – and developing detailed strategies that can counter them – may represent the difference between suffering major losses and stopping incidents before they begin.
When considering fraud and theft, for example, outside actors are likely the first people who come to mind. However, financial crimes committed by insiders have a devastating impact and must be considered when you're developing countermeasures. The access employees have to your systems and processes could be misused, and there are many cases proving the harmful effects of such misconduct.
The next step your organization must take involves strategies that will protect your interests and assets. It pays to determine what kinds of programs work and which tend to fail under pressure. While this planning ahead for potential insider fraud may be uncomfortable, it's vital to have fail-safes and defenses in place.
The Harvard Business Review (HBR) recently spotlighted one of the major problems afflicting companies across virtually all industries today. Namely, these businesses are paying heavily for compliance programs, but still seeing instances of insider fraud and other employee misconduct. The combination of expended effort and disappointing results is enough to make leaders wonder what they're missing.
HBR contributors Hui Chen and Eugene Soltes suggested that a lack of measurement is at the root of the problem. Firms tend to design their compliance training and reporting operations without a nuanced understanding of the actual nature of the issues they face. Getting closer to the issues as they exist today may allow leaders to expend less money and get better results from their operations.
The actual nature of compliance programs may be underwhelming. Chen and Soltes noted that training is often superficial, with employees attending sessions because they are required to and not retaining much of what they hear. More meaningful processes tend to focus on three main objectives, as specified by the U.S. Department of Justice: preventing misconduct, detecting current issues and getting internal policies in line with the law.
Building a new generation of compliance programs may come down to data collection and refinement based on whether training is actually having an impact. Leaders need to create policies that are not just followed in a box-checking manner but actively absorbed.
The Association of Certified Fraud Examiners recently released its 2018 Report to the Nations and revealed the prevailing trends in employee financial misconduct. The researchers found that the median duration of a scheme discovered over the past year is 16 months and that the median amount lost by an organization is $130,000. Interestingly, small companies were hit harder than their larger counterparts – the median loss by an organization with fewer than 100 employees was $200,000, while the figure for big businesses was $104,000.
As for how these issues come to light, the ACFE noted that tip-offs remain the preeminent method. Four in every ten fraudsters were caught due to a tip during the survey period, compared to 15 percent snared by internal audits and 13 percent found by a management review. Companies whose internal policies include a tip hotline found fraud via notification more often than those without.
Companies' plans for potential misconduct should include recourse in case they detect financial misconduct. Organizations that have an investigation strategy on the books at all times may suffer less damage if and when a fraudster strikes. The best partners for such cases are third parties that not only possess varied capabilities to suit a number of scenarios but are able to provide advice about the best approach for a given problem.