Fraud, Ethics, and Governance in an Economic Downturn

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.