If you think accountants don’t have a sense of humour, read this. A manager saw his life change recently when he inadvertently ran into the company’s internal auditor while the two men were shopping one weekend. Without cracking a smile, the auditor quipped that he was pulling a surprise audit on the manager’s branch first thing Monday morning.

The auditor was only joking, but the manager never realized it. He rushed back to the office and spent the weekend sweating to put things right.

Finally, on Sunday night he cracked. He called the Managing Director at home and confessed that he had been stealing millions of money from the company’s bank deposits. What should the management have done to prevent the loss?

There are three fundamental actions to mitigate fraud in your work place. They include creating a culture of honesty and high ethics, evaluating internal processes and controls, and developing an appropriate oversight process.

I have broken these into what I call a "14 points program of managing the risk of fraud in your work place”
The first action is for management to create a culture of honesty and high ethics.

It is the organization’s responsibility to create a culture of honesty and high ethics and to clearly communicate acceptable behaviour and expectations of each employee.

This should include the following:
Research in moral development strongly suggests that honesty can best be reinforced when a proper example is set—sometimes referred to as the "Tone at the Top”.

The management of an entity cannot act one way and expect others in the entity to behave differently. This explains why countries like Rwanda, Malawi and Ghana are ranked among the less corrupt countries in Africa, simply because the leadership of these countries not only "talk the talk” but they also walk the talk convincingly.

Creating a positive workplace environment is the second point. Research results indicate that wrongdoing occurs less frequently when employees have positive feelings about an entity than when they feel abused, threatened, or ignored.

Hiring and promoting appropriate employees. Each employee has a unique set of values and personal code of ethics.

When faced with sufficient pressure and a perceived opportunity, some employees will behave dishonestly rather than face the negative consequences of honest behaviour.
The fourth point program is Training. New employees should be trained at the time of hiring about the entity’s values and its code of conduct. All employees should be required to attend, including each senior executive.

The inclusion of top management is important for three reasons. First, senior managers are not immune to fraud. Second, as stated earlier managers act as models for rank-and-file workers.

Third, managers must know how to spot employee theft, and by taking education courses, they can learn the red flags that can signal internal fraud before the company loses a significant amount of money.

Training programs should avoid preaching or making threats, which can lower morale, create a management-versus-employee environment, and actually lead to more fraud.

Instead, employee education should concentrate on the benefits of antifraud programs and how employee honesty actually serves all workers.

to be continued next week...

The author is a Certified Fraud Examiner.
kirunga.ifpi@gmail.com