Currently, there is a high level of inflation in the world, which significantly affects the Balkan region, as well as the entire European and American economy. According to the latest public data, in October 2022 in the European Union (EU), the inflation rate ranged from 7.1% (France) to 22.5% (Estonia). Compared to the data recorded in previous years, this value has a significant impact. Such conditions are also reflected in the everyday life of consumers, as well as in the strategic decisions of companies.

The impact of the current inflationary context on the business environment is varied. The increasing risk of fraud and corruption are among the challenges that organizations must pay even more attention to than before. Fraud risk in an organization can manifest itself in many forms and in different departments, such as purchasing, sales, marketing, financial accounting, logistics or even payroll and human resources.

What are some common fraud schemes that arise during turbulent economic times?

In these economically turbulent times, some insider scams can be discovered. Within three to six months, some fraud patterns become visible to management departments within the organization. In such situations, the fraud consists of theft of products that are in stock, Ponzi schemes, misappropriation of assets, etc. A robust risk management system can facilitate early detection of these violations.

One of the consequences of an unstable economy is deterioration of the financial situation of some employees, some team members management or even a the owners of the companyand. Some of these people may engage in fraud involving money laundering, falsifying financial statements, procurement or supplier fraud, etc. Also, when some people resort to these types of scams, they are usually trying to commit corrupt practices or using kickback schemes. Such unethical behavior can be detected through preventive measures such as strict control policies and procedures.

There is no specific recipe that the management team can apply to prevent and stop fraudulent activities, rather the decision-making process in this regard depends on a business assessment to determine the fraud risks to which the company is exposed and the investment of resources necessary to combat them.

How can companies prevent such situations?

The first steps to reduce the risk of fraud and corruption are to establish an effective internal fraud prevention and detection program in the organization, which includes risk areas, indicators of fraudulent activities and risk mitigation measures, the establishment of internal corporate governance procedures and policies, as well as the establishment of a secure hotline integrity An internal anonymous messaging channel needs more than just successful implementation: its promotion within the company is essential so that employees feel safe using it. Such a program is also useful for strengthening relationships based on trust with customers and suppliers.

Organizations may also consider creating an internal anti-fraud training program for employees at all levels, including middle and senior management teams, as well as employees in key company departments such as procurement, financial accounting, sales and risk (such as internal audit or compliance ).

One of the key elements underlying fraud prevention is fostering an ethical organizational culture. Organizational leaders set the tone when it comes to creating a culture that promotes zero tolerance for fraud. After all, an organizational culture built around a value like honesty is the best tool for reducing the risks of fraud and corruption.

Review article by Burcin Atakan, Financial Advisory Partner, Deloitte Romania