Combat Fraud of Almost $1 Trillion

Fraud costs organizations 7% of their annual revenue.  It’s time to make ethics everyone’s business.

Companies are now losing almost $1 Trillion annually to fraud. And according to the Association of Certified Fraud Examiners’ 2008 Report to the Nation on Occupational Fraud and Abuse, the average fraud incident is $250,000 and a quarter of all incidents exceed $1 million. According to the same report, the typical company loses 7% of its annual revenue to fraud. Unfortunately, the majority of this is done by employees, with half of that figure being done by management.

Industry Week, the online publication of manufacturing, recently and strongly suggests we need to make fraud everyone’s business. They indicate how there needs to be a proactive approach to managing risk. Two of the ways to manage risk are through the provision of an anonymous employee hotline and ethics training.

The National Business Ethics Survey measured 18 dimensions of ethical culture, and the data show that the actions of leaders and peers significantly influence employees’ ethics. Employees in organizations with strong ethical cultures and formal programs are 36 percentage points less likely to observe misconduct than employees in organizations with weak culture and full formal programs.

Formal ethics and compliance programs do have an impact, but organizational culture, is more influential in determining outcomes. Yet, ethics as a strategy is rarely a defined part of management decision making. Ethical issues are generally managed by incidents as opposed to strategies and tactics.

It would be extremely beneficial for companies and government agencies to explore an integrated approach of hotlines and ethics training (such as those provided by Ethical Advocate) to create a robust and holistic approach to this endemic problem.