“Tips”?—?The Ultimate tool to counter corporate fraud!

For centuries, corporations have struggled to detect and prevent fraud. Corporate frauds have a devastating effect on organization’s reputation and financial position, as well as on the people involved. According to estimates by Certified Fraud Examiners, global losses to organizations from fraud may exceed $3.7 trillion each year (Source: Association of Certified Fraud Examiners, 2016 Report to the Nations on Occupational Fraud and Abuse, p.8, ACFE.com/RTTN). Take a minute to fathom this figure. To give it an interesting perspective, here are some interesting trivia:

a) A trillion dollars: $ 1,000,000,000,000,000,000. Or to simplfy: 10181018.

b) The Mercedes-Benz Maybach Exelero costs 8 million USD; which means you are able to buy 125,000,000,000 cars that cost this much.

c) The president of the USA earns $ 400,000 a year. You would have to work 2,500,000,000,000 years to earn a trillion dollars.

d) The average American household income is $56,516; so you would have to work 17,694,104,324,439 years to earn a trillion dollars

Long story short, that’s a lot of money and hence it becomes imperative to pay attention to these corporate fraud schemes and device systems and procedures to detect and prevent them.

Presenting the most effective way to detect and prevent corporate fraud (*drum rolls*) — “Tips”. Yes, something as simple as Tips is in effect the most effective way to tackle corporate fraud. In this age of fancy information systems and data sciences, tips continue to be the most effective tool to combat corporate fraud (see Fig 15 below).

Source: ACFE

So what exactly is a Tip? Well, a tip as it sounds is nothing but an email or a call from any stakeholder of the company (Employees, Senior Management, Customers, Vendors, Shareholders etc.) who deal with the company’s operations in one way or another. Well, fancy people can also call it Whistle-Blowing.

How can a Company device mechanisms to use “Tips” as a tool to detect and prevent fraud?

1. Develop a hotline function: When possible, companies should implement a hotline function to provide a forum for complaints and fraud tips by employees and outsiders. Someone from the Internal Audit department or any other person authorized by the Audit Committee should be the owner of this hotline number. The caller can chose to remain anonymous. The hotline operator should also use judgement to decide whether the call has merit or was it a frivolous call.
2. Dedicated Web page: Company can have a dedicated section on their website where people can come and report fraud. The data from this filled in form should reach the email box of an authorized personnel who should then investigate further in accordance with the fraud response plan.
3. Whistle-blowing program/Vigil Mechanism: Companies should develop an effective Whistle Blowing program (even if not mandated by law). This program should be made available to all employees real-time (For eg: It can be put on the company’s intranet). It should be made sure that the identity of the whistle blower remains anonymous and is not treated unfairly.

The tone should be set at the top. It needs to be made amply clear to the employees that Fraud will not be tolerated and strict action should be taken in cases of proven guilt. Frauds are most prone in companies that are in the financial services and ancillary sector and whose employee strength is less than 100 employees. Tips are very effective and an affordable method to detect and prevent fraud. Something, no organization can afford to ignore.

Happy Fraud Prevention :)