"Tone at the top" expressed by management, a must for combating fraud risk Says Ernst & Young "Fraud mitigation survey"
Key highlights:
• 40% respondents reported occurrence of a suspected incident of fraud; purchase department most vulnerable to fraud
• 96% agreed that companies should have a code of conduct , yet only 59% believed in its usefulness
• 76% respondents believed their employees complied with the code of conduct; contrarily only 35% had signed a code of conduct once while 27% had either never signed or were not aware of such a requirement
• 97% said they would report anyone they suspected of fraud, misconduct, bribery or corruption in their organizations
New Delhi, 23 April 2009: Managing fraud risk is a business imperative in today’s environment of growing instances of corporate fraud. “Tone at the top” is one of the key elements to combat fraud risk says the Ernst & Young “Fraud mitigation survey 2008”. “Tone at the top” refers to ethical atmosphere created in the workplace by the organization’s leadership team. It suggests the tone set by the management by prioritizing corporate values above other factors.
The fraud mitigation survey, which includes views of 124 management personnel across multiple industries, provides insights into management’s perception of ethical issues in today’s dynamic corporate scenario. It also discusses fraud mitigation measures taken by organizations and their effectiveness in strengthening the “tone at the top”.
40% respondents revealed that there had been a suspected incident of fraud, misconduct, bribery or corruption in their companies. Among the key functions in an organization, Purchase (19% respondents) was found to be most vulnerable to fraud risk, followed by Sales, Accounting and Warehouse/Inventory.
Ms. Navita Srikant, Partner and National Leader, Fraud Investigation & Dispute Services, Ernst & Young said “against the backdrop of a dynamic business environment, fraud is emerging as a key business risk. In order to reduce fraud incidences, consistent proactive efforts need to be made to identify fraud vulnerability in business processes and establish effective mechanisms for fraud control monitoring. Findings of the Ernst & Young fraud mitigation survey are representative of the management’s view on fraud mitigation measures. It emphasizes the need for companies to take constructive steps towards mitigating fraud.”
Establishing a code of conduct is the first step in the direction of effectively reducing fraud vulnerability and setting the proper “tone at the top”. Around 96% of the respondents agreed with this view and indicated that companies should have a code of conduct. 86% confirmed having a code of conduct in their companies. While having a code of conduct is imperative, its awareness, relevance to business needs and consistent compliance needs to be monitored.
Further, only 59% respondents believed that a code of conduct is useful in preventing and detecting fraud, misconduct, bribery or corruption. The reason for such a low response can be attributed to lack of awareness of the requirements and benefits of a code of conduct or to the fact that the code of conduct has failed to be a guiding tool to deal with ethical dilemmas arising from an ever-changing business environment. This emphasizes the need for companies to review the relevance of their code of conduct periodically and communicate the requirements and benefits to the employees through periodic awareness workshops.
76% respondents were confident that employees in their respective companies complied with the code of conduct. Contrary to this belief, only 35% respondents had signed the code of conduct once and 27% respondents had either never signed a code of conduct or were not aware of such a requirement in their companies.
Says Ms. Srikant “It is important for companies to take proactive efforts to reduce their vulnerability to fraud and make its employee aware of such initiatives. The success of implementing a policy/procedure lies in the importance assigned to it by the senior management. Guiding employees to deal with ethical dilemmas, encouraging a speak-up culture, ensuring effective follow-up on reported incidents are some steps to combat fraud. Current business environment necessitates a joint effort between the management and employees to mitigate fraud”.
Survey analysis highlighted the significance of a speak-up culture, which encourages employees and external stakeholders to work with the company to mitigate fraud. 72% respondents believed that employees in their companies felt comfortable reporting a suspected case of fraud, misconduct, bribery or corruption; about 12% agreed that employees in their companies would not report such incidents because of a fear of reprisal from seniors or colleagues. Almost all respondents (97%) said they would report anyone they suspected in their organizations.
In order to encourage a speak-up culture, it is essential to have an independent reporting channel which provides comfort in reporting suspected incidents and ensures protection of employees’ interests in terms of job security, elimination of fear of reprisal within the company or confidentiality. 81% of the respondents confirmed that their organizations have identified a person in a position of confidentiality or specified modes for reporting suspected incidents, while 14% have a telephone or web-based hotline in their companies. Around 86% respondents stressed that their companies would protect the rights of a complainant.
There are some surprises which this survey highlights. Companies generally believe that investigations should be done alone without informing the suspect. Yet 52% of the respondents believed that the suspected perpetrator should be informed that he/she is being investigated. Around 82% of the respondents opined that the suspect should be allowed to respond to the investigation report; only 64% thought that their companies followed this practice.
Ms. Srikant concludes “Lately companies are initiating the practice of corroborating management’s perception of the “tone at the top” with employee’s perception. This gauges the real differences in management / employee perception and highlights the actions for bridging the gap, if there are any”.
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This news release has been issued by Ernst & Young Private Limited which is one of the Indian client serving member firms of Ernst & Young Global Limited.
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