The Cost of Fraud

I downloaded the 2010 Kroll Global Fraud Report the other day - it's 47 pages of insightful data, analysis and recommendations with section overviews for both geographic and industry segments - I highly recommend downloading a copy. (Also would encourage readers to sign up for our upcoming webinar in which Melvin Glapion, Managing Director, UK Head of Business Intelligence, Kroll and Jeff Cramer, Managing Director and head of Kroll's Chicago office will discuss findings in this report)

To whet your appetite, here are some statistics that caught my eye just in my initial reading:

• 88% of respondents report they had been hit by at least one type of fraud in the past year - this is across small, medium and large enterprises. How are you collecting reports of suspected misconduct? I ask because I've heard many companies say "they don't have problems in their company - we don't have a need for an easy way to collect, investigate and resolve misconduct reports." Really???? You're one of the 12% of people that haven't been hit by fraud in the past year? Really? If so, Congratulations!
• Cost of fraud has risen 20% in the past year - across all size companies. This is NOT just a large enterprise problem
• Fraud/Corruption is not a victimless crime - it is hampering the economic development of all countries:
• 48% of respondents indicate that fraud has deterred them from engaging in business in at least one foreign country. (this is not just a developing country problem - 7% have not operated in North America due to the perception of fraud!)
• Corruption was named by 63% of respondents as the main reason for not doing business in Africa and 59% for avoiding Central Asia.
• Most companies are not prepared to comply with anti-corruption laws such as the US' Foreign Corrupt Practices Act (FCPA) or UK Bribery Act
  
• Only 36% of companies that fall under one or more of these laws believe these mandates applied to their business!

These statistics (and others in the report) are staggering and sobering in many ways. But at the same time, I'm re-energized and optimistic when I think of all the progress our customers are making to improve their overall ethics and compliance programs. Yet I only have the opportunity to speak with a small percentage of clients and prospective customers, so I ask you: How would you have answered the questions in the survey, and what are you doing to improve?

Deterring and Detecting Financial Reporting Fraud

The Center for Audit Quality just released a new report - Deterring and Detecting Financial Reporting Fraud - A Platform for Action, which I downloaded. The report focuses on financial reporting fraud at publicly-traded companies of all sizes, and its recommendations are intended to be scalable to different situations. I found it to be a pretty comprehensive report, with guidance that would be applicable for any organization (large, small, public, private, etc.) looking to improve internal operations and mitigate the risk of financial reporting fraud.

As it is a 55 page document, I won't try to summarize all the salient parts here, but I did think their top three characteristics in organizations where this risk in minimized are worth repeating:

• A strong, highly ethical tone at the top that permeates the corporate culture
  
• Skepticism - a questioning mindset that strengthens professional objectivity, on the part of all participants in the financial reporting supply chain
• Strong communication among supply chain participants

Given the corporate scandals that have emerged over the past few years, have you assessed your compliance and audit strategies with an eye toward mitigating this risk?