While many organizations tend to view fraud as unlikely, usually based on the trust they have with both employees and business partners, the reality is that such events cannot be predicted and managed properly without a fraud strategy in place. reporting protocols, respectively without a reliable incident response plan.

A recent survey conducted by the Association of Certified Fraud Examiners (ACFE) based on a large dataset of more than 2,000 actual fraud cases affecting organizations in 133 countries and 23 industries found that professional fraud generates more than $4.7 trillion in annual losses worldwide. In addition, research indicates that a typical fraud case takes 12 months before it is detected, and organizations annually lose approx. 5% of income due to fraudon average per case is approx 1,783,000 USD. In terms of fraud detection, internal employee reports were identified as the most common method (42%) of identifying risky situations, which emphasizes the importance internal reporting mechanisms.

As organizations recognize the need to improve their fraud prevention efforts, a number of important questions arise.

1. How can organizations develop a culture of awareness and responsibility to effectively combat fraud?

Professional misconduct and negligence can significantly affect the security of any organization, and any non-compliant event can impact and destabilize a business.

Training is essential to any anti-fraud program and is a key element prevention of operational risks and in building a resilient workforce capable of detecting and reporting breaches and fraud. To protect a company’s business and reputation, an anti-fraud training program must include, in addition to general aspects, the realities specific to each geography, industry, and organization. Additionally, to emphasize the importance of a completed training program, employees could sign an annual statement that they understand the principles and are compliant with the internal fraud prevention program, which is a collective commitment to ethical behavior in the organization.

In addition to a general anti-fraud training program for all employees, organizations should consider implementing a specialized top management training program, which will cover topics such as alarms specific to different departments, prevention methods, and strategies for identifying risk situations. By developing the skills of management personnel, the organization provides an additional level of protection against potential risks.

2. What are the most important areas for companies to focus on in their fraud prevention efforts?

Along with awareness of internal fraud risks achieved through special trainings, integrity warning it is an important tool of organizational ethics that promotes a balanced work environment and serves as an important force against potential acts of corruption and fraud.

According to the American Anti-Corruption Institute (AACI), denunciation (informing) is an “intentional and optional act of disclosure” carried out in accordance with the provisions of the law by a person or group of persons consisting of “the disclosure of material illegal or other wrongdoing, actual, suspected or anticipated” by an authorized internal or external organization that has the ability to correct the situation

European adoption of the new Directive (EU) 2019/1937 on the protection of whistleblowers (informing) is an urgent challenge for member states, as well as for public and private organizations. Recognized as one of the most effective means of detecting and preventing potential acts of corruption and fraud, integrity reporting requires the protection of whistleblowers’ anonymity. This safeguard not only prevents potential retaliation against whistleblowers, but also increases confidence that whistleblowers’ reports are heeded.

Establishing internal controls, exposing abuses, preventing and promoting accountability are the key principles of operational safety. This is why whistleblowers play an important role in providing important information that might otherwise remain unknown: confidential information can be important evidence that can help uncover complex fraud schemes, expose financial irregularities and unethical practices. On the other hand, the fear of exposure deters people from participating in corrupt practices and contributes to the formation of an organizational culture based on ethics and responsibility.

When information is communicated through appropriate channels and directed to an independent authority within the organization, immediate action can be taken to prevent or mitigate risks. Thus, the integrity warning forces organizations to cultivate a a culture of responsibility and honesty and requires every employee to make every effort to uphold ethical standards.

Raising awareness and implementing integrity warning tools are important steps to prevent organizational fraud

It is beneficial for fraud to detect it in its early stages, but it is more effective for the organization to be one step ahead and prevent it. Through integration continuous awareness programs and specialized training for management teams as well as assistance effective notification system (informing)organizations can contribute to creating an environment in which employees are encouraged to actively contribute to the prevention and detection of fraud, while adhering to the values ​​of honesty and increasing transparency and cooperation within the organization and with other market players.

Review article by Denise Simion, Manager, and Elton Mat, Manager, Financial Advisory, Corporate Litigation Services, Deloitte Romania.