How to stop fraud and corruption in the workplace
What's the best approach for stopping fraud and corruption?
The key deterrent of fraud and corruption is awareness and prevention. Some of the processes which are deemed most effective involve denial of opportunity, effective leadership and oversight, auditing and pre-employee screening.
Denial of opportunity may be translated in the form of internal controls and consistently adhering to clearly defined procedures established by the University's leadership.
What's wrong with just trusting people?
Nobody wants to doubt co-workers and their honesty.
In fact, most people will not engage in fraudulent and corrupt conduct. However, we must understand and accept the reality that fraud is possible and some people will be corrupt!
All too often in the past, "trusted employees" in organisations have been given the "keys to the kingdom" with little or no oversight and control, leaving the door wide open for fraudulent or corrupt behaviour.
Trust is important … but trust is not an internal control! Relying on trust alone is asking for trouble particularly in those areas of an organisation where this is a greater risk of that trust being breached.
If you do not believe that fraud and corruption is possible in the workplace, you will never identify it, even if it is clearly evident. Very often symptoms (i.e. "red flags" - refer to Portrait of a Fraudster - what to lookout for) may be viewed as administrative errors because individuals cannot conceive of the existence of fraud or corruption particularly where there is a long time affiliation with co-workers.
Why isn't it enough to just sanction someone once such behaviour is identified?
Remember the fraud triangle? Simply punishing a person who has been caught committing a fraud is not a totally effective way to deter fraud. Some of the reasons are as follows:
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A fraudster will only commit fraud when there is a perceived opportunity to solve their problems in secret. They don't anticipate getting caught, so the threat of sanctions doesn't really carry any weight i.e. they don't expect to face them.
- If a fraudster rationalises their conduct, to them it is legal or justified. Thus, they don't see their actions as something that should be sanctioned.
- Fraudsters greatly fear that their behaviour will be detected. The threat of sanctions is only ever a secondary consideration.
What can I do to deter fraudulent and corrupt behaviour?
To effectively deter fraud and corruption, you need to:
- be aware of where fraud and corruption is likely i.e. understand and manage the areas of risk under your control;
- have a good understanding of why people may engage in fraudulent or corrupt activity i.e. understand the components of the fraud triangle and be on the lookout for red flags; and
- always "do the right thing", and encourage others to do the same.
What is "doing the right thing"?
For all staff, doing the right thing means living the University's values, and working and behaving in accordance with the Code of Conduct, Staff Enterprise Agreement/Employment Contracts, University policy framework and all relevant laws and regulations.
As a manager, it means "leading by example" (i.e. setting the right tone, walking the talk) and taking appropriate steps to ensure that your internal controls are adequate and operating effectively to:
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prevent fraud and corruption from occurring; and
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detect and appropriately respond (as soon as possible) to any incidences should they be found or suspected.
Regardless of who you are, what you do, or what you're responsible for, it also means:
- saying NO! to anything that sounds or looks suspicious, improper or illegal; and
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having the courage to speak out and speak up when you see something that just doesn't look or feel right.
What are some essential internal controls for deterring fraudulent and corrupt behaviour?
The following basic internal controls are a good starting point for ensuring a low fraud and corruption working environment:
- Segregation of duties, to prevent one person from undertaking an entire transaction alone.
- Clearly established lines of delegated authority and responsibility.
- Position descriptions that clearly represent the jobs people actually do.
- Compulsory clearance of overdue accumulated leave, particularly for those in key positions of trust.
- Job rotation (wherever possible), again for those in key positions of trust.
- Staff awareness, education and training to ensure all staff are aware of and can recognise the signs of possible fraudulent or corrupt behaviour.
- Adequate protective measures for safeguarding, assets, processes and data.
- Documentation retained and managed in accordance with records management policy.
- A work environment where people feel comfortable in raising concerns and are not penalised for doing so.
- Ongoing management oversight / monitoring of work functions to verify that controls are operating effectively e.g. reconciliations, confirmations, exception reports.
How can I improve my knowledge of how to prevent and deal with fraud and corruption?
Here are some hypothetical case studies which illustrate the types of fraudulent or corrupt acts that can take place in the workplace, the risks that the University may be exposed to from these acts, and what can be done to prevent/minimise or manage them.
See how well you understand the risks raised in each case and consider what you would/could do if faced with the same circumstances!
