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12 Key Factors to Support Transformation into an Counter Fraud Culture

Updated: Aug 29, 2023

Building a counter fraud culture is essential for protecting an organisation from financial loss. Learn the strategies and best practices to implement an effective counter fraud culture with this guide.

Discussing counter fraud culture

Culture is the widening of the mind and spirit


Defining organisational goals, mission, vision and values, publishing policies and procedures that align with each other is one thing and using such phrases as ‘walking the walk’, ‘talking the talk’, ‘practicing what we preach’ and ‘leading by example’ is another, but if you don't have real and demonstrative leadership and ownership in terms of a counter-fraud culture then how can you expect compliance and support from the rest of the organisation when you seek to create and engage staff in cultural change?


Understand the risks and consequences of fraud

The organisation benefits when introducing a counter-fraud culture can be significant. Before building a counter fraud culture, it is important to understand the risks and consequences of fraud. Fraud can have severe financial implications for organisations, leading to significant losses and damage to reputation. It is essential to educate employees about the various types of fraud that can occur and the potential consequences for both the organisation and individuals involved. By raising awareness and understanding the risks, employees will be better equipped to identify and prevent fraudulent activities.

Culture is not something that just happens; it is created through intentional actions and shared values

There are a number of key factors that are incongruent with building a counter-fraud culture that would need to be addressed before an organisation was able to introduce a successful fraud risk mitigation framework.

  • Non-compliance with operational policies and procedures that aren't addressed and documented

  • Non-compliance with counter-fraud policies and procedures

  • Ethical concerns raised to line management that aren't properly addressed

  • Alignment of leadership views of organisational ethical standards and what happens operationally


ANTI-CORRUPTION CULTURE OUTCOMES

In focusing on the creation of a new culture, recognise that in developing an environment where individuals feel comfortable in discussing ethical issues and that they feel safe in reporting integrity or corruption concerns builds trust and creates the opportunity to receive additional information on fraud and corruption risk that may not otherwise have been received. Aligning with this outcomes and introducing an approach to facilitate discussion and reporting, building can only be of benefit to an organisation.


KEY FACTORS IN A NEW COUNTER FRAUD CULTURE

Elements to consider when introducing a counter fraud culture is the internal and external communication and engagement, additionally is there accountability for the introduction of this new approach and are these activities and subsequent results published.

  1. Is counter-fraud communicated from the top, is it a priority for the CEO and board and are their discussions and actions documented and visible to the organisation?

  2. Is there an counter-fraud owner, and definitive action taken where fraud is identified? Is the culture consistently part of the discussion and issues raised and acted upon or is it just empty words? We have seen too many organisations globally that have a counter-fraud message and policy but have still been prosecuted for their actions or inaction to prevent it or have punished whistleblowers for their disclosures.

  3. Are values and behaviours published and practiced, are we clear on values or are there acknowledged and accepted grey areas such as conflicts of interest, gifts and hospitality, and the lack of declaration, reporting, or response where non-compliance is known? Do the published values and behaviours form part of staff performance review and are there agreed actions for individuals to take an active part in developing culture?

  4. How are staff inspired to protect organisation revenues when typically, their views aren't sought on culture, risk identification and mitigation both at the crucial stage of setting out organisational policy and during day to day operations?

  5. How is its ensured that there is communication to the whole organisation and where their views and professional expertise isn't sought, how can we reasonably expect culture to change?

  6. How is regular and honest communication introduced that is rapidly, demonstrably and effectively responded to?

  7. How can staff report fraud when there is no, or limited awareness or fraud training? What do current fraud typologies look like and what controls are available to reduce the risk. Education programmes are the key?

  8. Why would staff report fraud if they aren't protected from reprisals because of a lack of confidential and objective internal reporting routes and/or a whistleblowing protection framework?

  9. Is there accountability and are staff that breach organisation codes of conduct or counter-fraud policies dealt with correctly? Many organisations may, for example, seek merely to remove the identified fraudster without establishing the flaws in systems or processes which facilitated these activities and thus leave the way open for subsequent fraudulent activity.

  10. How do you communicate to staff, partners and suppliers that you take fraud seriously and act. Is it documented within contract terms?

  11. Do you measure your counter-fraud culture performance, does it translate into an increase in risk identification, reporting and mitigation, is there an increase in engagement or job satisfaction?

  12. Do you look for continuous improvement, measuring success and impact of the counter-fraud culture and where flaws are identified ensuring that those are rectified immediately? Equally, it is important that any document enshrining the culture does not become dormant but evolves as the situations the organisation finds itself in do.

FOCUS ON PLANNING

So, before you introduce a counter-fraud strategy, you should plan to ensure that you have or are able to build and retain a counter-fraud culture. You must first be clear about the result you want to achieve and if an organisation lists staff integrity and ethics as its values, do you really ‘walk the walk’ and ‘talk the talk’ or simply provide empty rhetoric which creates a lack of trust in leadership.


What behaviours need to change to ensure a greater chance of success. In our experience, where staff feel patronised or undervalued by senior management there is limited appeal in assisting leadership introduce change? Once we know where we are then we can start designing a roadmap.


COUNTER-FRAUD ENVIRONMENT

To create a counter fraud environment and culture where all individuals consider this risk as part of their day to day activities, leadership need to assess the following areas:

  • Coordination of internal and external communication methods, routes and discussions on countering fraud

  • Coordination of engagement with staff, suppliers and other stakeholder and the activities taken to counter fraud

  • Ownership of the approach being taken by staff, management and leadership

  • Accountability of each individual within the organisation including the response taken where there is non-compliance with an organisations values and standards


COMMUNICATING COUNTER-FRAUD INTENT

To understand where current culture is in its progress it is important to engage staff, that includes receiving feedback and full consideration of their views in what needs to be done to make the change. We often hear about the ‘tone at the top’ but we rarely consider the ‘mood in the middle’ or the ‘reality at the bottom’. Only with this engagement do you have a greater chance of success because the staff on the ground know from practical experience how the reality of business operations can undermine many of the principles the organisation stipulates that it abides by.


Thus, for example, the organisation may have a strict policy on refusing all gifts tendered by a supplier in pursuance of a contract, but it might be asking a great deal of a sales executive in a far flung jurisdiction to potentially scupper a deal by ‘offending’ that potential client and refusing to take the gift. This is the type of pinch point which demonstrates the true value of any anti-fraud culture – could the sales executive in reality refuse the gift, scupper the deal and walk back into his organisation and receive a pat on the back from his managers? If the answer is no, then the anti-fraud policy may not be as robust as management perceive it to be.


How do you communicate culture and anti-fraud stance to partners and suppliers? Having the correct message may have the impact of reducing external fraud attempts because fraudsters realise that there is a greater chance that they will get caught.


ENCOURAGE REPORTING AND WHISTLEBLOWING

Encouraging reporting and whistleblowing is a crucial aspect of building a counter fraud culture and trust within your organisation. Employees should feel comfortable and safe reporting any suspicious or fraudulent activities they come across. This can be achieved by implementing a clear and confidential reporting system, where employees can report concerns without fear of retaliation.


It is important to communicate the importance of reporting and whistleblowing, emphasising that it is everyone's responsibility to protect the organisation from fraud. Additionally, providing incentives or rewards for reporting can further encourage employees to come forward with any information they may have. By creating a culture that values and supports reporting, you are sending a strong message that fraud will not be tolerated and that everyone has a role to play in preventing it.


REGULAR MONITOR AND AUDIT FOR FRAUDULENT ACTIVITY

Regular monitoring and audit for fraudulent activity is an important step in building a counter fraud culture. Regularly reviewing financial records, transactions, and other relevant data to identify any suspicious or fraudulent activity, implementing robust internal controls and segregation of duties can help prevent and detect fraud.


It is important to have a dedicated team or individuals responsible for conducting these audits and investigations. They should have the necessary skills and knowledge to identify red flags and follow up on any potential issues. By regularly monitoring and auditing for fraudulent activity, you can quickly identify and address any issues, sending a clear message that fraud will not be tolerated in your organization.


THE PSYCHOLOGY OF PREVENTION

Recognising that the message you communicate internally and externally can have an impact on the prevention can be a valuable cost effective approach. Introducing layers of physical and ICT security can send a strong message that there is a greater chance of an individual being caught. Publishing and monitoring the control measures in place including guardianship and a proactive compliance capability, barriers and reduction in opportunity highlights the high risk and lower benefits. What is the message you're sending out?


CONCLUSION

Introducing an counter-fraud culture is only one part of a counter-fraud strategy but is an important component in achieving success in profiling risk and introducing risk mitigation. If you want your staff, partners or suppliers to report fraud and be a part of the counter-fraud culture of risk mitigation, you have to build an environment of trust and send a consistent counter-fraud message. Collective education and action towards this new culture will assist an organisation profile the fraud risks that directly affect it better coordinate its response.



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