The phenomenon of economic criminality represents a threat to all companies. Company heads possess the decisive influence which will determine whether or not this threat turns into a crisis that may even place at risk the survival of their organizations.

Experience has shown that companies are in a much better position if they actively address fraud risks, have implemented an effective control and security system and have created an atmosphere of commitment with the help of a strong corporate identity. The benefits are twofold: Firstly, these companies succeed in discovering more criminal acts and at the same time are able to reduce the amount of undetected fraudulent activity. Secondly, their approach fosters a high awareness of the phenomenon of economic criminality, which automatically puts them in a better position to guard against it. Such companies see themselves as being in a continual learning process, which, in turn, causes their approach to become more proactive. This has a positive effect on the “soft” control factors and helps improve the internal control system.

Besides external factors, there are numerous internal factors that can lead to the increased likelihood of economic criminality. Some examples of internal factors are:

• Weaknesses in operational and organizational structure
• Reduced levels of loyalty to the company
• Inadequate internal control systems
• Cutbacks in internal control personnel and systems
• Excessive employee authorization levels
• Management override possible (allowing controls to be side-stepped)
• Lack of role model behavior from the management
• Inadequate security precautions
• Increasing complexity and volume of business transactions
• Increased demands on performance
• High proportion of remuneration dependant on company turnover, profits etc.
• Stagnating income
• Lack of open and risk-oriented internal communication

These internal factors present companies with the perfect starting points for developing a program to actively instigate appropriate preventative and remedial measures. The goal must be to establish an effective fraud management system, i.e. a self-contained body that (while observing all legal regulations) coordinates the organizational and technical measures that are necessary for the prevention, detection and investigation of criminal acts. When doing so, it is important to carefully integrate with existing management and control systems.

The AuditFactory can help you devise and implement a fraud management system (or any individual component thereof). You can either:

• outsource the job to us and we will handle the entire project, or
• engage us as a partner and we will work on the project together with your internal audit department and/or fraud manager.

Individual components of a fraud management system (e.g. prevention program, fraud due diligence audits, forensic audits etc.) can, of course, be implemented or carried out separately.