March 4, 2009 –
It seems there are articles everywhere about
just how far the economy is turning down… How does the economic
downturn impact fraud, ethics, and governance?
Does fraud
increase during an economic downturn? Statistics show that the answer
is “Yes”. Yesterday’s Business Week Online article, “
Tech that Combats Employee Fraud” by Rachael King, discusses this point:
“Instances
of fraud rise during recessions as employees become financially
desperate or disgruntled -- or both, experts say. That fraud can range
from abusing expense accounts to skimming and check tampering. For
example, nearly two-thirds of 1,280 executives said they expect
accounting fraud perpetrated by both employees and executives to
increase during the next two years, according to a
Deloitte survey released in January.”
King’s
article also points to the many different technologies one can use to
address the increased fraud incidents, including hotlines. Hotlines
have evolved into a comprehensive tool by integrating internet
reporting, report management, detailed analysis, and anonymous reporter
and administrator communication capabilities. Having a hotline
administered by a third party is far more effective than conducting it
internally, too. Third party hotlines, such as those Ethical Advocate
provides, have 24/7 coverage, are multilingual, have systemic report
management, robust analytics, and are truly anonymous, all features
that internal hotlines have trouble meeting.
In these turbulent
times, hotlines should be an integral part of an organization’s overall
ethics and governance program. This ethics and governance program
should also include ethics policies, training, communication, and above
all else, management’s demonstrated leadership of these principles.
Each of these is an integral part of the recipe. Leave any one item out
and there is a risk of the overall effort not working, like bread
falling because one of the ingredients was left out…
So, while
an economic downturn may increase the instances of fraud, increasing
the focus on ethics and governance programs is an important
counterbalance. These programs have always been cost effective and the
return on investment increases dramatically during times like these.