A weakness in many accounting or auditing programs is the fact that fraud is often treated as something that can be prevented through internal controls. If you think you can eliminate fraud through controls alone, then you’re wrong. If you think you can always detect fraud through data analysis, you’re also wrong. No matter how sophisticated your controls, the clever fraudster can find a weakness. In addition to the individual seeking to get around controls, you may have management actively overriding existing controls. They have the ability to steal large amounts of funds at a high level by simply ignoring or ordering others to override standard procedures. The fraud examiner can’t be everywhere at once. But you can multiply your eyes and ears by recruiting employees as part of your fraud detection team. If fraud is occurring, more often than not, someone else is aware of it or has suspicions. In this segment, we will discuss the impact whistleblowers have on an organization and how important it is to provide a safe and confidential method of reporting suspected fraud. An effective reporting mechanism is one of the most important parts of your anti-fraud program. There is no doubt that fraud costs an organization money. That’s money that’s not available for benefits, raises, new equipment, or new employees. So when people steal from the company, they are stealing from everyone at the organization. And studies show that once the money is stolen, the chances of getting the money back are not good. According to the surveys conducted by the Association of Certified Fraud Examiners, about half of fraud cases result in no recovery at all, and the remainder only see a limited recovery of the stolen funds. That is why it’s important to emphasize that part of EVERYONE’S job responsibility is to watch for and report suspected fraud. The ACFE began the Report to the Nations on Occupational Fraud in 1996. It is issued every two years. The numbers are based on an extensive survey of ACFE members across the globe. One statistic that has been consistent since the survey started is that most frauds are detected by tips. In fact, more frauds are discovered by tips than by internal audit, external audit, and management review combined. You can see then why it is so important to make employees part of your fraud detection team and encourage them to report any misconduct they know about. Additionally, it’s also important to include your vendors and customers in your reporting program. They can often alert you to employees or even other vendors soliciting bribes, kickbacks, or other improper payments. So what is a “whistleblower”? A whistleblower is simply someone who “blows the whistle” on wrongdoing or any type of misconduct. The report can be made directly to the organization or entity, or the report can be made to some type of governmental or law enforcement agency.
