Taking the best route to managing fraud and corruption risks

The state of white-collar crime and the frameworks used to manage fraud and corruption risks.

While there were a number of notable findings that emerged from our research, one thing seems quite clear: The majority of organizations are not well positioned to conduct investigations. Many organizations conducting investigations are under-resourced and are spending more time “putting out fires” than focusing on fraud detection and applying a consistent investigative approach. The majority of companies that are in this situation will very likely find it extremely difficult to identify the responsible parties and receive meaningful cooperation credit for having done so. Other notable findings that emerged from our research include the following, which we explore in more detail throughout our report:

  • Most companies are still reactive, rather than proactive, in managing fraud risk and respond- ing to fraud and corruption once issues have been identified because they lack resources and strategy. Overall, less than one in five respondents described their organization’s fraud risk strategy as “well defined,” and a little over a third reported having a fraud detection program. Respondents cited a lack of internal resources as the biggest challenge to proactive fraud risk management.

  • Few companies are availing themselves of the tools and best practices for mitigating fraud risk. For example, less than one in three large companies have implemented state-of-the-art forensic data analysis, and the numbers are even lower among midsize and small organizations. These results correspond with findings from Protiviti’s 2015 Internal Audit Capabilities and Needs Survey, which listed data analysis and fraud monitoring as two of the top five internal audit priorities.

  • Third-party fraud and corruption risk is barely on the radar of most organizations. Less than one in 10 respondents reported a high level of confidence in their organization’s vendor fraud and corruption risk oversight. When this is considered alongside a recent finding in the Organisation for Economic Co-operation and Development (OECD) Foreign Bribery Report, which found that 75 percent of bribes were paid by third parties, the gap between how much attention is being paid to third parties in comparison to the potential risks they represent is alarming. This finding is consis- tent with key findings of the 2015 Vendor Risk Management Benchmark Study from the Shared Assessments Program and Protiviti, which noted a pervasive lack of maturity in vendor risk gover- nance.3 Our findings also suggest that companies may be inviting trouble by not thoroughly vetting acquisition prospects for indicators of corruption and fraud. Indeed, many of the white-collar crime and corruption matters Protiviti is called upon to investigate are the result of fraud and corruption schemes that were not detected during due diligence and continued for years after the deal had closed.

  • Organizations without strong fraud detection and reporting programs face a higher risk of damaging “whistleblower” disclosures. The lack of a strong fraud detection and prevention culture – “tone at the top” – can create a vacuum in which some individuals may feel compelled, either morally or for the financial remuneration of a whistleblower “bounty,” to report fraud directly to regulators instead of trusting that their concerns will be fully and fairly investigated internally.

  • The trend toward “consultative” internal audits must be weighed against the deterrent effect of surprise audits. While surprise internal audits may run counter to the organization’s culture, they can certainly have a deterrent effect when used in a targeted manner focused on perceived problem areas or intransigent business units or geographies.
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