corporate integrity - business ethics concept - text in letterpress wood type on digital tablet computer with stylus pen, coffee cup and cookie

Fraud Prevention Tip #4: Create a Solid Ethical Foundation

My four-hour presentation on fraud prevention had just ended. Over two hundred people were leaving the room and headed to their next conference session. One man lingered behind in front of the stage, and as I packed up my computer and cables he introduced himself and asked a great question – How do we know our organization has a solid ethical foundation?

That’s not a question with a quick answer. So we left the room, found coffee, and invested 45 minutes in making a list of the minimum attributes of a business environment build on ethics. Here’s our result.

  • Clear Definition of Who We Are As An Organization

Ethics in Business as Motivation in Stone Wall

Somewhere out there, your business is probably being targeted for fraud. Internet-based hackers, international organized crime organizations, and even a small percentage of employees all see your business assets and information as too tempting to ignore. But what should you do to deter these barbarians at the gate – or already inside your business? Managing business fraud risks requires your daily attention. It’s a ‘cat and mouse’ endeavor where the smarter we get, the harder they have to work to get us. While there are many prevention and deterrence steps you can take, here are three critical components of any business anti-fraud program.

This isn’t marketing copy, this is a statement of who we are, what we do and why. It’s a statement that every employee publicly signs-on to support, and every supplier, contractor and customer can look to when seeking guidance about how to act when dealing with us. It clearly says that we practice the highest of ethical principles every single day, that we treat our employees and all others with respect and fairness, that we honor our commitments, that we create and maintain a safe work environment, and that we strive to ‘do the right thing’ in our business practices.

  • Management Example

We walk the ethical talk at all levels of management. The ‘tone at the very top’ is the same as the tone for the fist level supervisor. There is no difference between our ethical statements and our deeds. When we are unsure of an action, we seek guidance first. And when real-world events create uncertainty, we report these events immediately so that objective action can be taken if appropriate. Transparency is the norm.

  • Code of Conduct

We have a written Code of Conduct that lays out required behaviors in day-to-day and non-routine business situations. This Code provides clear instructions, ‘what-if’ examples, and answers to likely questions. It’s the same Code for executives and employees regardless of level, position or length of service. Employees and others refer to the Code for practical guidance on what to do and what to avoid. The Code recognizes that not all situations can be anticipated, so when unique events don’t match Code guidance employees are directed on how to obtain clarity from authorized sources before taking action. “When in doubt, talk it out” is the norm.

The Code of Conduct is formally reviewed annually in a meaningful way – ideally at the first staff meeting of the year. Employees are required to sign-off on Code compliance as part of this annual review including a positive acknowledgement that they are not aware of any Code violations in themselves or others. Suppliers and contractors are required to honor our Code, and our Code is made part of all procurement or contracting documents.

  • Positive Work Environment

A positive work environment includes:

• Clear measurable job requirements
• Objective performance measurement
• Reward systems consistent with mission and ethics
• True equal opportunity
• Collaborative decisions when feasible
• Safe conditions
• Clear meaningful communication
• Meaningful training and development
• Employee empowerment consistent with job requirements
• Trusted mechanisms to obtain advice or report concerns

  • Quality Comes First

Quality in business gets a lot of talk, but is too often pushed to the side when time and cost pressures are present. A real observable measurable culture of quality is essential to a foundation of ethics. Quality includes meeting our commitments as best we can; honoring laws, regulations and policies in both letter and intent; respecting individuals, the community and the environment; and simply doing the right thing at all times. ‘On time done right’ is the balanced goal of daily behavior at all levels

These five foundation principles of an ethical business environment aren’t everything, but they are a solid start. Operating practices, internal controls, market conduct and everything else we do as an organization all flow from our core ethical principles. As with everything else in business, the Chief Executive Officer leads the charge. The CEO must demand compliance and hold all accountable for results.

How does your organization stack up against this baseline? Let us know if we can help you assess your current state and assist in building a Better! result.

John J. Hall, CPA

John J. Hall, CPA

John J. Hall, CPA, is an author, speaker and results expert who presents around the world at conventions, corporate meetings and association events. Throughout his 35-year career as a business consultant, corporate executive and professional speaker, John has helped organizations and individuals achieve measurable results. He inspires audience members in corporations, not-for-profit organizations and professional associations to step up, take action and “do what you can.”

 

 

Fraud Prevention Tip #3: The Chief Executive Must Lead the Anti-Fraud Charge

Because they sit at the very top of the organizational pyramid, CEO’s are by definition the Chief Risk Officer – regardless of whether someone reporting to them actually has that title. And when the CEO gives an order, everyone else responds. That’s why the CEO must lead the charge against fraud.

Preventing fraud is a key component of business risk management. Yet it’s often ignored or handled passively by top leaders. The unspoken is, “If we’re attacked, we’ll respond. Until then let’s focus on other issues.”

Certainly not the ‘Tone at the Top’ of effective leaders in this period of daily fraud threats.

So here are four things the CEO must do to lead an Anti-Fraud Campaign for their organization.

  • Personal Commitment The #1 executive must personally lead the anti-fraud charge. They can delegate authority for implementation, but they cannot formally dressed man behind luxurious deskdelegate ultimate responsibility for results. It requires a 100% commitment of personal example, time and energy. They can’t be ‘too busy’ because this will permit the ‘too busy’ excuse for everyone else. Others may handle the day-to-day details but it’s up to the CEO to hold them accountable over an extended time for meaningful, measurable results.
  • Visible Support The CEO must speak publicly and enthusiastically about the initiative. Along with other Fraud Risk Management leaders, they must be willing to preach the message. They will do this at live events, in written communications, and through technology including video recordings, conference calls, webinars.
  • Resources A good business idea is far different from an adequately financed idea. CEOs must provide the resources (time, headcount, and finances) needed to initiate and sustain the anti-fraud initiative over time until it becomes the normal way we conduct business ever day. Our new habits and muscle-memory.
  • Safe Environment For Anti-Fraud Campaigns to work, employees must feel both empowered and safe to check details and speak up when something doesn’t look right. Employees must be actively recruited into anti-fraud efforts, and they must be given safe reporting options – including anonymous reporting hotlines for those who prefer to chose this option.

These four items certainly aren’t the whole action list for leaders interested in fraud prevention, but they are a great place to start. They are the critical foundation on which we’ll build a comprehensive response. We’ll cover the rest of the list in future articles.

If you’re the Chief Executive Officer – regardless of your actual title – you know what you have to do. If someone else is the chief executive, your job starting right now is to recruit and secure that support. If you’re serious about preventing fraud for your organization, this isn’t a ‘Should Do’ item for next week or next month. It’s a ‘Must Do’ for action today.

There are a few key lessons I’ve learned from years of assisting clients with their Anti-Fraud Campaigns. This lesson you can take to the bank: Nothing meaningful will happen without strong, consistent, visible, vocal CEO support.

John J. Hall, CPA

John J. Hall, CPA

John J. Hall, CPA, is an author, speaker and results expert who presents around the world at conventions, corporate meetings and association events. Throughout his 35-year career as a business consultant, corporate executive and professional speaker, John has helped organizations and individuals achieve measurable results. He inspires audience members in corporations, not-for-profit organizations and professional associations to step up, take action and “do what you can.”

 

 

Boss in his office reading newspaper - the business section

Fraud Prevention Tip #2: Fight Through What Holds You Back

As CFO for his $3 billion company, David has a lot on his plate. Rapid growth, thin controls in new overseas markets, monthly and quarterly reporting deadlines, and overseeing a staff of over 75. Fact is he just never gets time to actively address fraud risks. He knows he should. But so far his efforts have been limited to keeping his fingers crossed and hoping for the best.

Until last week. That was when his accounts payable team found what is turning out to be a multi-million dollar vendor fraud. And it’s been going on for over three years. Not surprisingly, David is now ready to act.

I’ve been showing clients how to initiate, lead and sustain effective Anti-Fraud Campaigns for over 25 years. Unfortunately, for most organizations it takes a direct hit like David’s to force them into action.

But why should that be? Isn’t Fraud Risk Management just part of larger Business Risk Management ongoing efforts?

Quite simply the answer is yes. But there is a definite pattern of reasons and excuses about why organizations – especially large organizations – don’t take effective action to manage their fraud risks before they are victimized.

Here are three common excuses for inaction. Do they sound familiar?

Excuse 1: Uncertainty About How to Start and What’s Involved

How many times have we all heard that a journey of a thousand miles begins with a single step? Pretty basic stuff. Unless you don’t know which direction to Concept of businessman surrounded by questionstake that first step. North? South? East? West? Or something angled in between. Get the first steps wrong and you are headed way off in the wrong direction five steps later. And every subsequent step takes you even further from your intended goal.

The Anti-Fraud Tips in these blogs tell you pretty much every step to take. You’ll get the road-map to point you in the right direction from day one. Follow these ideas, and ‘uncertainty’ as an excuse for inaction evaporates, allowing confidence from taking proven actions to quickly fill in the void.

Following these ideas on your own may be all you need to get the job done over time. But an experienced guide can accelerate you progress on the anti-fraud trail. Just ask for help from someone who has walked this path too many times to count.

Excuse 2: Lost Momentum

We’ve seen dozens of corporate Anti-Fraud Campaigns start with a bang and then quickly fade away to a fizzle.

Why? Simple: inadequate leadership support.

Fighting fraud is a Campaign, not an Event. To work, it requires the visible, vocal support of senior managers over an extended period until it sticks and becomes how we do business at every level. It’s not the flavor of the day, to be pushed aside as other important issues need more immediate attention. It requires a sustained effort until fighting fraud becomes part of the reflex ‘muscle-memory’ of every employee.closeup of newton pendulum

Removing and replacing habits takes time. Investment in leadership time and other resources must be secured right from the start. And that leadership starts with the Chief Executive Officer. No one else can make it happen.

After all, isn’t the CEO the de facto Chief Risk Officer regardless of whether someone else may have that title on their business card? Shouldn’t the CEO lead the charge against fraud? You know the answer, and so does your CEO.

Excuse 3: Flawed Beliefs About the ROI from Anti-Fraud Campaigns

Many leaders in organizations both large and small have the same flawed belief: we don’t have much fraud and the cost of managing the little bit we have isn’t Child's Play - banker, financierjustified. In short, the ROI – Return in Investment – doesn’t justify the effort.

Yet when I ask them to quantify just how much fraud, misconduct, theft and other wrongdoing they experienced in the last 12 months, with only three exceptions in over 25 years they have no idea.

Enter the Association of Certified Fraud Examiners (www.ACFE.com). Their “2014 Report to the Nations on Occupational Fraud and Abuse” states that “the typical organization loses 5% of revenues each year to fraud.”

5 percent of revenues? I don’t buy it and never have. It’s just too big to be reality.

But in my own work with clients, I’ve never seen less than 1 percent in larger organizations. 1 percent of $3 billion for David in our example above would still be $30 million. His team just discovered a multimillion dollar case. I bet he’s wondering where the rest is hidden? (And if he’s not, he should be!)

In large organizations, you’ll never cut your losses from misconduct and fraud down to zero, so don’t make that you goal. But try this idea on for size.
Assume it’s 1 percent of your revenue. Could you cut that in half in 18 months? The answer is a resounding yes.

For David, those savings would be a minimum of $15 million added directly to his bottom line through better ‘fraud expense control’. And I’m confident of results two to three times that based on my past experience.

How’s that for ROI, CFO’s?

Exactly how do you do it? By following the ideas in these 40 Fraud Prevention Tips. You’ll need to stay tuned for more of the details – or reach out right now and we’ll get you started on your own Anti-Fraud Campaign today.

How many of these and other excuses blocking serious anti-fraud efforts do you face in your business or clients? Unfortunately every organization has them, and they won’t go away on their own. Right now is the time to fight through these barriers – these excuses for inaction – and get the job done.

We can help. Just say the word and we’ll get started together.

John J. Hall, CPA

John J. Hall, CPA

John J. Hall, CPA, is an author, speaker and results expert who presents around the world at conventions, corporate meetings and association events. Throughout his 35-year career as a business consultant, corporate executive and professional speaker, John has helped organizations and individuals achieve measurable results. He inspires audience members in corporations, not-for-profit organizations and professional associations to step up, take action and “do what you can.”

 

 

fraud investigation

Fraud Prevention Tip #1: Eight Fundamentals of Fraud Risk Management

Every leader in every business, education, government and not-for-profit organization has at least one thing on common. They all want to prevent fraud from happening on their watch.

To build, implement and sustain an effective Anti-Fraud Campaign, here are eight ideas to increase your odds of success.

  • Strong Prevention Controls – Formal procedures and daily behaviors directed at preventing fraud are the foundation of any anti-fraud effort. Preventive Clear Responsibilitiescontrols limit access to resources and information. They provide for high-quality recording, review, approval, and summation of transactions and other events. And they ensure that objectives are achieved and organization assets are protected.
  • Immediate Detection – Effective anti-fraud campaigns bring the one-two punch of prevention and quick detection procedures. The best assumption is that some wrongdoing will slip through your defenses. When that happens, be ready to find it right away – same day, same week, same month. No more.
  • Clear Responsibilities – Every employee, manager and executive must know exactly what to do and what to avoid when they suspect wrongdoing and fraud. Tell them in advance. Don’t leave them wondering about required next steps.
  • Anti-Fraud Training – Provide meaningful ‘how-to’ manager and staff training so that everyone knows not only what can go wrong but exactly what it looks like in the records they see every day. Not general awareness sessions; meaningful prevention and prompt detection skills education. Informed employees are your best line of defense. Teach them exactly what they need to know.
  • Confidence to Report Suspicions – Your team needs to feel confident to speak up. They must feel safe. They are the heroes you must have ready to take Suspicionsaction and report what doesn’t look right to them. Break down any barriers that discourage reporting. Make it easy to report – including anonymously.
  • Open Brainstorming of Risks – Have you ever initiated an open discussion of what could go wrong? If not, start today. Bring it up in a staff meeting. Say, “You know, we’ve never talked about fraud risks in our business. Let’s do that right now.” Get the input of everyone. You’ll be pleasantly surprised just how willing they are to share their concerns – and their willingness to better manage your risks.
  • Pre-plan Your Response – Fraud Risk Management includes planning in advance how you will respond if fraud does occur. Who should be involved? Who takes the lead? What resources will you need and who can provide them? Minimize the need for crisis-based decisions. Build the shell of your response in advance – before you need it.
  • Take a Strong Position in Legal Actions – Think seriously about your appetite for legal action before you need to pursue those options. Anti-Fraud Campaigns include an organizational stance that openly says, “We won’t tolerate it here. And if you target us, expect a fight!” Isn’t that what your honest employees, agents, vendors, customers and other stakeholders want to hear?

How does your organization stack up? These eight ideas form the foundation of a meaningful Anti-Fraud Campaign. But they are just the start.

This is the first in an in-depth series of fraud prevention blogs and articles we’ll be publishing in the coming months. Be assured we’ll go deep on these eight ideas and many, many more.

Stay tuned – and never hesitate to reach me if you want to kick around ideas or have questions related to implementation in your own unique organization. We’re here to help. Just ask.

 

John J. Hall, CPA

John J. Hall, CPA

John J. Hall, CPA, is an author, speaker and results expert who presents around the world at conventions, corporate meetings and association events. Throughout his 35-year career as a business consultant, corporate executive and professional speaker, John has helped organizations and individuals achieve measurable results. He inspires audience members in corporations, not-for-profit organizations and professional associations to step up, take action and “do what you can.”