The financial scandals at the turn of the twenty first century eroded investor self-confidence and public trust. In response, Congress passed the Sarbanes-Oxley Act (SOX) in 2002. Nevertheless fraud and corruption continue to can be found and the extent of white-collar crime is surprising. The 2012 Report to the Nation published by the Association of Authorized Fraud Examiners estimates that companies lose 5% of their earnings to scams annually and that the total, worldwide cost of fraud exceeds $3. 5 trillion annually. As proved by the recent $7 billion fraud at Sociate Generale fraud is an international problem. If you or your CFO can envision ways in which employees may have determined white-collar crimes against your company then chances are good that it has already happened. fraud
The magnitude of ethical violations by employees is also shocking. According to the 2004 semi-annual National Business Strength Study (NBES) from the ethics resource center only 55 percent of employees surveyed said that they reported misconduct. The top reasons why they don’t report misconduct included:
– They didn’t feel that any corrective action would be studied,
– Fear that reports of misconduct would not be confidential,
– Fear that reports of misconduct would cause retaliation by superiors,
– Dread that reports of wrong doings would bring about retaliation by coworkers, and
– That they didn’t know who to contact.
The 2007 State Government Ethics Survey, also conducted by NBES, signifies the pervasiveness of the condition in the public sector:
– Nearly sixty percent (57 percent) of govt employees report that they have witnessed an infringement of ethics standards, coverage or the law in their workplace within the past year, and
– Almost one-third of federal government employees who observed wrong doings did not report it, thus so that it is impossible for management to ensure that problems are properly dealt with to stop future occurrences.
When you might hope that the ethics situation has improved, the latest NBES survey (2011) reported that retaliation against employee whistleblowers has risen sharply, and that the percentage of employees who perceive pressure to compromise their specifications to do their careers climed five points from 2009 to 12 percent.
Don’t rely on auditors to discover fraud. Auditors, both external and interior, do a notoriously poor job of detecting scams. Even though the audit function is necessary and important it is not sufficient to either find or prevent fraud. Most frauds are detected when an staff complains or gives an anonymous tip. To considerably reduce fraud losses companies must raise awareness about fraud among all employees at all levels. Personnel are a company’s sight and ears for the prevention and early recognition and of all types of white-collar crime. Sadly most employees, like most auditors, don’t really know what to look for. That’s where the role of a Chief Learning Officer is critical.