26 October 2017

HR’s role in reducing economic crime and occupational fraud

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Occupational fraud or economic crime is increasing at an alarming rate. Timely education can make a big difference. 

In Australia:

  • Commercial fraud has increased by 15% to $442 million in recent times.
  • Economic crime is about 60% higher than the global average of 36%.
  • At 65%, cybercrime is double that of the global average.

Fraudsters were most likely to be company management, followed by professional criminals. While the largest sectors of fraud victims are investors and government, the value of fraud aimed at financial institutions has grown eight-fold.

The most common types of economic crime are asset misappropriation, cybercrime, bribery, corruption and procurement fraud.

Alarmingly, most occupational fraud is committed by trusted personnel who know which weaknesses to exploit.

The opportunity to commit fraud is caused by the lack of sufficient internal controls, and the motivation to commit fraud can stem from financial pressures and workplace resentments. Economic uncertainty and sluggishness, increased industry regulation and political instability also contribute the the rise in economic fraud.

Many employees who commit fraud rationalise their behaviour.

  • They believe that to help a business survive in harsh and uncertain economic times, unethical behaviours are acceptable. Such behaviours include flexible product return policies for customers, retrospective discounts or bonuses for suppliers, and offering entertainment, personal gifts and services, or cash to win and retain business.
  • They also believe that management would justify unethical behaviours to meet financial targets through ‘creative’ product return policies, reporting of sales and revenue, and changing of valuation assumptions.

Human resource professionals can reduce the opportunity for employees to commit fraud in several ways.

Fraud prevention

  • Improve internal controls and processes
  • Educate employees on what fraud actually is and that it is contrary to their terms of employment
  • Ensure that your compliance framework is simple, localised and easy to understand
  • Encourage employees to be proactive and alert to fraudulent behaviour
  • Ensure that your recruitment and onboarding process is rigorous, with a robust verification process and includes a probe of candidates’ ethics

Fraud detection

  • Institute a Whistleblower policy and ensure that management maintains an impartial stance for whistleblowing.
  • Make whistleblowing employees aware of the appropriate steps that need to be taken when making their concerns known, reassuring them that they will be safe from repercussions.
  • Follow through with prosecuting the offender to provide a disincentive to other employees and indeed, potential employees.

Other measures

  • Provide Employee Assistance Programmes that help employees cope better with significant stress
  • Increase employee engagement through strategic focus (surveys) as engaged employees are less likely to want to commit fraud
  • Make sure that Management creates a culture that expects and models honesty, integrity and ethical behavior all the time.

Also, consider leveraging a great online learning management system like Velpic to clearly communicate your organisation’s anti-fraud policies and procedures, increase employee engagement, and reduce your liability.

For example, by referencing this excellent asset misappropriation diagram from Page 5 of PwC's guide to preventing detecting and investigating fraud, HR managers can streamline and automate a comprehensive structured anti-fraud training program all year round with minimal touch time and maximal reach and reporting. 

This is just one way you could harness such a powerful and multifaceted knowledge sharing and training tool. We invite you to discover how valuable it could be to your business.

Book my free consultation

About Marlene Liontis. Marlene is a workplace education enabler and knowledge curator who is passionate about helping organisations get the latest and great HRtech to accelerate their business success, increase sales leads, maximise investments, and upskill their workforce for the future.