board members

Fraud Prevention Tip #41: Train Your Board Members

There is an assumption that once an individual is accepted into a Board position, they are qualified to provide governance oversight of the organization’s anti-fraud efforts. But for most Board members, nothing could be further from the truth.

History is filled with examples of corporate corruption and fraud at the highest levels that occurred right under the noses of the Board. And it’s not just highly-publicized for-profit organizations that are at risk. School districts, not-for-profits, municipalities, credit unions, universities, private foundations, family run businesses and dozens of others are at risk due to inadequate fraud risk management skills at the Board level.

Whose job is it to train Board members and bring their Fraud Risk Management skills up to speed? Strange as it may sound, it’s management’s job.

The Anti-Fraud Toolkit Structure

The Anti-Fraud Toolkit Structure | Module 2 – Leadership

The message of this module is simple: Nothing will happen without strong, visible, vocal executive leadership. And by ‘executive’ I mean the Chief Executive Officer – whatever their title may be in your organization.
The #1 executive must lead the anti-fraud charge. They must be willing to speak publicly and enthusiastically. They must provide you with the resources you need to initiate and sustain your anti-fraud initiative. They must embrace that fighting wrongdoing and fraud is a campaign waged over time with their continued support. It is not a once and done event that receives encouraging words but no meaningful follow-though. Your #1 job as an anti-fraud leader is to recruit and secure meaningful executive leadership support. Module 2 – Leadership will give you the specifics details of what you will need from the executive management team.

Here are three specific areas where the Board must be up to the task.

1. Oversight of the Organization’s Anti-Fraud Efforts

The Board must ensure that management has done a competent job of identifying fraud risks and putting into place effective controls and behaviors to mitigate those risks. And not just the risk of financial misstatement that consumes so much of Board and management efforts. They must also monitor the risks of significant misappropriation, misstatement of non-financial results, and corruption and shadow deals – especially where it relates to bribery of domestic and foreign officials. Of course the recent uptick in cybercrime and other exposures in the technology arena has even the best anti-fraud Board members squirming in the seats.

2. The Risk of Senior Management Override of Controls

It’s been proven too many times to count that no one in the employee ranks can survive taking on senior management when collusion at the top causes controls to be overridden and fraud to be perpetrated. Not even the Chief Internal Auditor or Chief Counsel. They may have legal remedies when they are fired for challenging the CEO, but no one I’ve ever encountered who has taken this route would do it again willingly. Only the Board can step in when the most senior executives are determined to cheat. That’s one of their key governance roles, and one of the fundamental reasons why the Board exists. To monitor and counterbalance senior management when needed.

3. The Risk of Fraud For the Organization

Not all fraud directly harms the organization, at least initially. Some schemes actually bring substantial benefit to the organization and its leaders. Intentionally misstating the safe use of products, illegally dumping toxic substances, and hiding the harmful effects of food additives and chemicals used in the home are just three examples. Board members must be aware of fraud and other wrongdoing that benefits the organization, and be willing to take effective steps to prevent these risks from ever happening.

Of course, there are many other Fraud Risk Management challenges that all Board members must accept. You can help by teaching them what they need to know and do.

We can help as well. Take a look at our strategic partner for Board quality and effectiveness. The Center for Strategic Business Integrity was recently formed specifically to improve the quality of oversight by Board members and their Trusted Advisors. Take a quick look: www.CenterSBI.com. Might be just what you need.

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.”