New Help on the Frontier of Fraud

Progress in the war on fraud is slow in the post-Sarbanes-Oxley world. According to Oversight Systems, while 40 percent of respondents to a survey it conducted in 2005 said that SOX reduced the risk of financial fraud, a new study that the company will release the end of this month shows that number has dropped to 29 percent. Fifty-six percent of this year's survey respondents cited identifying areas of greatest risk as a major challenge in complying with new SOX and PCAOB guidelines.

The biggest frauds in recent history were perpetrated by top executives with a little help from employees a rung or two down on the corporate ladder; and because the very people who control the company coffers are the bad guys, fraud can go undetected and unreported unless governance best practices are in place that include well-designed whistle-blower systems.

Knowing this, most businesses both in the U.S. and abroad have implemented such systems, right? Not exactly. An Ernst & Young survey of 13 European countries in 2007 reported only a third of company respondents said they had a hotline for employees to report possible fraud incidents. According to the International Chamber of Commerce, (ICC) an organization that promotes trade and investment across borders and has hundreds of thousands of member companies in over 130 countries, the reason so many companies lack whistle-blowing programs involves cultural and legal differences.

To level the global playing field, the ICC just published the first global standard for facilitating the setup of whistle blowing programs that includes the following steps:

• Create a whistle-blower program as part of internal integrity practices

• Handle reports early on, in full confidentiality

• Appoint a high-level executive to manage the whistle-blowing unit

• Communicate in as many languages as there are countries of operation

• Abide by external legal restrictions

• Allow reporting to be anonymous or disclosed, compulsory or voluntary

• Acknowledge, record, and screen all reports

• Enable employees to report incidents without fear of retaliation, discrimination, or disciplinary action

Three accounting and finance associations are also making news on the forefront of fraud prevention tools. The American Institute of Certified Public Accountants, The Institute of Internal Auditors and the Association of Certified Fraud Examiners now offer "Managing the Business Risk of Fraud: A Practical Guide." The guide is based on the work of a team of over 20 experts and academics. The paper can be downloaded for free at www.aicpa.org,
www.acfe.org, and www.theiia.org