There are many resources available for those seeking to deter and detect financial fraud. Research in recent years has yielded valuable information about the conditions that make an organization more susceptible to fraud, as well as techniques and tools that support both deterrence and detection. This knowledge is of particular value to all participants in the financial reporting process, including management, boards of directors, audit committees, and internal and external auditors.

ANTI-FRAUD COLLABORATION RESOURCES

The risk of fraud should be considered when designing controls throughout financial and business processes. However, there are several reasons to look beyond the traditional approaches to preventing and detecting fraud, writes John Verver at the FEI Daily blog.

Recommendations for encouraging reporting of fraud, ensuring retaliation-free environment

WASHINGTON, DC (Nov. 15, 2017) – Organizations can take substantive actions to address the reporting of suspected financial fraud, according to a new report released by the Anti-Fraud Collaboration. Encouraging the Reporting of Misconduct presents recommendations from key players in the financial reporting supply chain – including corporate directors, financial executives, and internal and external auditors.

The Collaboration compiled best practices from roundtable discussions focused on suspected financial reporting fraud and the negative impact that fear of retaliation has on the timely detection of such fraud. By understanding the factors that discourage reporting, the Collaboration offers ways to counter such obstacles and makes recommendations for creating and maintaining a retaliation-free environment.

Formed in 2010 by the Center for Audit Quality (CAQ), Financial Executives International (FEI), The Institute of Internal Auditors (IIA) and the National Association of Corporate Directors (NACD), the Anti-Fraud Collaboration promotes the deterrence and detection of financial reporting fraud.

“The Anti-Fraud Collaboration is pleased to present these recommendations to help companies detect, report, and deter fraud,” Institute of Internal Auditors President and CEO Richard F. Chambers, CIA, QIAL, CGAP, CCSA, CRMA, said on behalf of the Anti-Fraud Collaboration. “No organization is immune to the risk of financial reporting fraud, but all companies can take necessary steps to mitigate such fraud, including encouraging employees to report misconduct, identifying the delinquency earlier in the process, and maintaining the integrity of financial reporting going forward.”

Commented CAQ Executive Director Cindy Fornelli, “Our hope is that the outcome of the roundtable discussions and report will serve as a catalyst for continued dialogue among financial reporting supply-chain participants, the investing public, and other interested parties. Those who observe misconduct should be encouraged to report their observations, and we hope that the report will provide concrete ways companies can provide a safe environment for them to do so.”

The roundtable discussions focused on key issues, including:

  • What organizations can do to encourage reporting of misconduct.
  • What creates fear of retaliation and what can be done to mitigate that fear.
  • What organizations and each participant in the financial reporting supply chain can do to cultivate a retaliation-free environment.

“Next to preventive measures, the best defensive tools leadership has to mitigate damage related to financial misconduct are the eyes and ears of their teams,” said Andrej Suskavcevic, president and CEO of FEI. “Establishing a corporate culture that respectfully embraces the reporting of perceived misconduct, together with proper and clearly communicated investigative procedures, can dramatically affect the willingness of staff to participate. Our research aims to help leadership meet those goals.”

Added Peter Gleason, president and CEO of NACD, “One of the most effective things boards of directors can do to promote a healthy working environment is to step up their oversight of company culture. That begins with encouraging management to define its unique culture and communicate it properly to all levels of an organization.”

The report is available for download on the Anti-Fraud Collaboration website.

Organizations can take substantive actions to address the reporting of suspected financial fraud, according to Encouraging the Reporting of Misconduct, a report from the Anti-Fraud Collaboration. The report presents key recommendations from key players in the financial reporting supply chain, including corporate directors, financial executives, and internal and external auditors. The Collaboration compiled best practices from roundtable discussions focused on suspected financial reporting fraud and the negative impact that fear of retaliation has on the timely detection of such fraud. By understanding the factors that discourage reporting, the Collaboration offers ways to counter such obstacles and makes recommendations for creating and maintaining a retaliation-free environment.

Washington, DC – The Anti-Fraud Collaboration continues to promote diligence in financial fraud deterrence and detection with the latest installment of its series of case studies. The new case study features fictional company LDC Cloud Systems, a rapidly growing global technology company whose board must contend with a bribery allegation and accounting abnormalities.

“The Anti-Fraud Collaboration is pleased to present the latest case study in our series designed to raise awareness of financial reporting fraud,” said Center for Audit Quality Executive Director Cindy Fornelli, on behalf of the Collaboration. “These case studies have proven to be valuable educational tools for all members of the financial reporting supply chain, as well as students.”

With a plot centered on a bribery allegation and questionable accounting oversight within the company, this hypothetical scenario is designed to provide the reader a better appreciation of how fraud situations can unfold and be addressed, including the importance of strong board oversight. The LDC Cloud Systems case study explores actions of management and the board in-depth, providing a timeline of decisions after they uncover potential problems within the company. The case study also illustrates how complex accounting practices common in today’s fast-changing business environment can make a company susceptible to fraud.

For classroom use, the Anti-Fraud Collaboration created a video series to bring scenes from the case study to life. The videos are available at the Anti-Fraud Collaboration website.

“New technologies can make for a disruptive business environment, and can create new challenges on existing business practices,” said Andrej Suskavcevic, President and CEO of FEI. “Resources like this case study provide a practical tool to help financial executives explore issues that can help to deter financial reporting fraud.”

“For internal audit, this case study provides powerful insight into the challenges even highly competent functions face when confronting complex risks that are compounded by deceptive actions within a company,” said IIA President and CEO Richard F. Chambers, CIA, QIAL, CGAP, CCSA, CRMA. “It also shows the importance of being adequately resourced to address such risks.”

“Audit committees serve a critical role in ensuring the long-term value of their companies. This case study serves as a valuable resource to help audit committees think through their roles in providing oversight of their companies’ financial controls and communications,” said Peter Gleason, president and CEO of NACD.

Anti-Fraud Collaboration case studies take participants through a hypothetical scenario about a fictional company dealing with fraud. Guided by an instructor, the participants then discuss what could have been done to address or help avoid the situation. Each case study offers a companion discussion guide for instructors, available on request.

LDC Cloud Systems is the Collaboration’s fourth case study. Others include the following:

  • Hollate Manufacturing focuses on understanding the conditions that can generate and perpetuate fraud and misrepresentation in financial reporting.
  • Carolina Wilderness Outfitters is intended to facilitate a discussion about how to conduct an internal investigation when fraud is suspected in an organization.
  • Kendallville Bank focuses on the importance of exercising skepticism as a participant in the financial reporting process.