Pressure of uncertain markets, escalating input costs, high labour turnover, advent of technology and others provide significant opportunity and incentives for fraudsters to commit financial studies. This, according to an ASSOCHAM-Grant Thornton joint study, makes it imperative for companies to have an anti-fraud framework in place if they want to mitigate the risks from such events.
A whistleblower will be the hero of companies that decide to implement such an anti-fraud framework. Companies that want to deal with frauds will also have in place an in house complaint mechanism.
“Companies must maintain anonymity of the complaint mechanism by ensuring confidentiality of information reported through the whistle-blower mechanism. There should also be a policy of non-retaliation against the whistle-blower,” the study added.
The study titled “Financial and Corporate Frauds” says there is an urgent need to equip Indian businesses against such frauds through a systematic programme of fraud risk assessment, monitoring, incident response and remediation. It also points out that a robust control environment is vital to reduce such risk, misconduct within companies and the dynamic business environment.
Management views on mitigating fraud, corruption and misconduct should be revealed to the employees, and disciplinary action and zero tolerance for violations should also be part of the message that the board sends out to employees, the study adds.
The study suggests that organisations willing to counter fraud develop sound fraud prevention policies that must include extensive background checks on new-hires, promotion candidates, suppliers, customers and business partners (including international third parties); segregation of duties; position rotations; limitations of physical access to assets; removal of unauthorised and old system users and whistle blower mechanism.
An ethics code, training of employees periodically about the policies and procedures, including in-person and web-based training for people to recognise and report red flags to frauds; special training for finance professionals and others in high-risk positions (i.e. business developers, sales and marketing) have been recommended.
Highlighting how continuous monitoring using data analytics is imperative to improve efficiencies and integrate supply chains, as most organisations are now heavily reliant on IT systems to support business processes, the study suggested that companies put adequate control on devices containing confidential data, encrypt devices and use reliable software tools with remote data wiping capabilities to safeguard against device theft or intrusions.