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The Link between Fraud and Culture

Do companies understand the drivers behind culture and the behaviours that lead to fraud? Findings from the Protiviti report, Creating a Strong Corporate Culture Begins with Managing Fraud Risk: Assessing the Results of the Latest White-Collar Crime and Fraud Risk Survey, shows there is still work that needs to be done.

Some of the challenges identified by the Report include:

  • That organisations continue to lag when it comes to implementing the types of leading practices required to build a strong culture;

  • Rescues;

  • That many organisations fall short when it comes to having a fraud risk management program or a fraud mitigation strategy; and

  • That third-party risk plays a big part in risk management.

The Report is a product of the partnership between US-based Utica College and Protiviti and includes interviews with 748 executives and professionals, globally.

According to the Report’s findings, 16 per cent of interviewed organisations rely upon senior management to look after fraud risk management, with one respondent choosing the ‘individual is not known’ option. For those respondents in the Asia-Pacific region, 12 per cent claimed they do not have any senior manager looking after fraud risk management, and 5 per cent said they don’t know who should be responsible for fraud risk management.

With risk management, a current ‘hot topic’, GRC Professional took the opportunity to catch up with Anthony Hodgkinson, Asia-Pacific Lead & Forensic Director of Protiviti. Hodgkinson has been dealing with fraud and risk management for almost 30 years and has seen this space evolve through a kaleidoscope of roles, including forensic risk management, investigations and anti-bribery and corruption management—with the latter focused on fraud and corruption.

Hodgkinson’s work spans multinational corporate and the government sectors and has been based largely in the Asia-Pacific and the Middle East. Prior to working in risk management, he spent 12 years working in law enforcement.

The Protiviti survey comes at a time when the ‘big conversation’ taking place about culture has focused on how culture can drive unethical behaviours like fraud and corruption.

“Culture within organisations is a very hot topic,” said Hodgkinson, “especially with issues occurring at senior levels such as Harvey Weinstein in the US and the Deputy Commissioner of the ATO in Australia. It is a topic that is being discussed globally and includes issues such as harassment, intimidation, and bullying within the workplace, but also much wider issues that can lead to fraud and corruption.”

According to Hodgkinson, there is a growing awareness about the impact of culture on organisations. “A couple of years ago, however, this conversation was not as important. It would have been a senior management issue, not a middle management one.”

Previous big international media issues, such as those experienced in 2014 by GlaxoSmithKline, fined $US500 million (almost $AUD 670 million) for bribery and fraud, would have been spearheaded by the poor culture within their organisation.

“Such issues were based on peoples’ perception of culture and ethics and what they thought was right and wrong, “Hodgkinson explained.

In addition, other remuneration stresses that encouraged employees to meet certain key performance indicators or certain sales criteria that were required to be met led to the blurring of ethical lines, and even to this day has caused numerous employees to act in ways that are inappropriate.

Another example of a major cultural lapse would be the Wells Fargo ‘cross-selling’ incident to meet certain sales targets. The connection of bad conduct and remuneration is something that the Australian Securities and Investments Commission (ASIC) has addressed and are trying to inculcate good corporate culture.

What key findings stood out?

For Hodgkinson, one of the Protiviti Report’s key findings is that organisations are still lagging when it comes to finding methods to tackle issues surrounding poor culture, and ultimately, that means they are still lagging when it comes to effectively tackling unethical behaviours. “There is a lack of understanding around the drivers of fraud,” Hodgkinson said.

What is holding organisations back?

Resourcing remains a challenge, says Hodgkinson.

Often, business units are left to try to manage the many cultural challenges instead of referring these to an appropriately-skilled person elsewhere within the organisation. Such deeper cultural issues do need to be shared with human resources and certainly with the legal departments.

There is not enough focus on the segregation of duty, Hodgkinson believes.

“Everybody needs to understand that fraud risk is a risk to the organisation. It has a financial, moral and a reputational impact, and therefore it should be routinely discussed, assessed and integrated into the business-making decisions.”

* Correction update: The link to the the Report has been changed..

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