One of the greatest threats to any organization is one that comes from within: corporate fraud and misconduct. Often, organizations are more concerned about the external threats they face such as market competition or economic downturns. However, internal threats like fraud can be just as, if not more, damaging. Corporate misconduct is a pervasive issue that can undermine the very foundation of a business.
Fraud encompasses a wide range of unethical activities. From falsifying key records to embezzlement and insider trading, fraud can take many forms, all bringing dire consequences. Small businesses and organizations are the most vulnerable to this: without the proper controls in place, they can easily fall victim to fraudulent activities. Today especially, with the emergence of new technology that both aids and complicates fraud detection, organizations of all sizes must remain vigilant.
At P&A Grant Thornton, we recently hosted a Fraud Forum on "Building Integrity and Resilience Against Corporate Misconduct”. Experts and government officials shared their strategies and best practices as they tackled topics such as the importance of anti-fraud governance, navigating regulatory compliance, and developing an anti-fraud playbook.
In this article, let’s go through the key insights shared during the forum, all towards helping you build a fraud-resistant organization.
Develop Social Consciousness within your Organization
One common misconception is that the responsibility of detecting and dealing with fraud lies solely with key individuals or teams within an organization. During the forum, Hon. Heidi L. Mendoza, former Commissioner of the Commission of Audit and former Undersecretary General of the United Nations Office of Internal Oversight Services, stressed that involving and putting people at the center by developing a social consciousness within your organization is key.
Part of addressing corporate fraud is understanding the needs and sentiments of your people. After all, fraud has four components to thrive: incentive, rationalization, opportunity, and capability. Get to the bottom of this by implementing internal audits to detect discrepancies, reviewing financial records and procedures, interviewing employees and management to understand the context behind unusual behaviors, and enhancing training for staff on fraud prevention and vigilance. Building a partnership between your community, corporation, and auditors is essential for fostering a culture of integrity.
However, developing this required consciousness is easier said than done. With so many moving parts in any organization, things often get busy in the front end of things, and it’s hard to emphasize ethical practices and awareness for people who are simply trying to get by. This is why developing this social consciousness must start from the top: leadership must set the tone by modeling ethical behavior and prioritizing integrity in all business practices.
Compliance and Transparency towards Resilience
Did you know that according to the Association of Certified Fraud Examiners (ACFE), organizations lose up to 5% of their annual revenue to fraud? However, this loss in revenue is not the only cost that businesses incur when they allow fraud to persist. Damaged credibility, legal penalties, and loss of stakeholder trust are also significant consequences.
To that end, corporate compliance remains a key motivator in ensuring ethical business practices. With the emergence of digital fraud, cybercrime, and insider threats, regulatory scrutiny continues to increase in today’s business landscape. In order to keep up with this continued emphasis on compliance, there must be a paradigm shift between the mindset of compliance for the sake of avoiding fines, to a genuine desire for transparency and integrity.
Atty. Oliver O. Leonardo, Director of the Markets and Securities Regulation Department of the Securities and Exchange Commission, Head of the Commission’s Internal Affairs Unit, and Supervising Director of the Anti-Money Laundering Division, after discussing case studies on global incidents of fraud, cited two key takeaways: the importance of transparency & governance, and the need for strengthening compliance mechanisms. He emphasized that compliance not only reduces financial & legal risks but also enhances investor trust and corporate reputation.
Creating Tailored Anti-Fraud Solutions
In truth, there is no one-size-fits-all solution to prescribe for organizations to minimize fraud. Each business differs in risk appetite, scale, industry, and operational complexity, that influence their specific vulnerabilities and needs. Still, it is helpful to view successful organizations’ anti-fraud playbooks as a framework to build upon.
Christopher M. Ferareza, my fellow Advisory Partner and Chief Sustainability Officer at P&A Grant Thornton, discussed the Anti-Fraud Playbook co-developed by Grant Thornton with ACFE. It encompasses 10 major steps anchored on these 5 components of an effective fraud risk management program: Fraud Risk Governance, Fraud Risk Assessment, Fraud Control Activities, Fraud Investigation and Corrective Action, and Fraud Risk Management Monitoring Activities.
Chris highlighted the need for identifying and understanding your organizations current state and long-term goals, creating a culture based on integrity, identifying blind spots based on thinking like a fraudster, utilizing data analysis, and laying the groundwork for the future. A necessary step is viewing all of these actions as the necessary foundation for the continued battle against fraud.
The Path Forward
That is not to say that we should accept fraud as an inevitability in every business. Rather, as we move towards our goal of creating a business landscape fueled by integrity and transparency, we must actively implement and uphold robust anti-fraud measures. Let’s continue to stay vigilant and foster a culture of honesty and accountability!
As published in The Manila Times, dated 19 February 2025
