Reporting Lines and
Anti-Fraud Programs

Reporting Lines and Anti-Fraud Programs

What Is an Anti-Fraud Program, and What Is Its Purpose?

As mentioned in a previous article, the effects of fraud, whether internal (occupational) or external (organized crime), are a significant cost to organizations, which can, in some cases, have a devastating impact. Therefore, establishing an integrated program to prevent, deter, and detect fraud is an essential element in the formulation of effective internal control.

Components of an Anti-Fraud Program

The anti-fraud program consists of preventive elements, such as an Ethics or Conduct Code, to inform employees and business counterparts of the expected behaviors within the scope of their work. It also establishes additional prohibitions beyond those set by laws and regulations. For example, in terms of conflicts of interest, it restricts the possibility of approving business and contracts with related parties.

There are also detection elements, such as the establishment of a procedure or protocol for the investigation of fraud reports or suspicions, their subsequent analysis, and the imposition of sanctions.

Ethical Reporting Lines as a Component of the Anti-Fraud Program

In this context, establishing an efficient reporting mechanism is an essential component of the anti-fraud program, which can be classified as both a deterrent and a detection mechanism. Indeed, ethical reporting lines serve as a deterrent in the sense that the knowledge of their existence will prevent a considerable number of people from engaging in inappropriate behavior.

People may not act ethically due to the preventive effect of an Ethics Code, which communicates the expected behaviors, but because they feel that the likelihood of being discovered and punished for inappropriate behavior is high. In other words, there will be a significant number of individuals who will behave appropriately out of convenience, not conviction.

The Detection Role of Ethical Lines

The detection role of ethical reporting lines is probably the most important. According to statistics from the ACFE (Association of Certified Fraud Examiners) of Austin, Texas, USA, properly managed ethical reporting lines allow for the initial detection of between 42% and 43% of the frauds that organizations become aware of.

This data may seem surprising, given that it might be assumed that other mechanisms, such as external and internal audits, should have a higher percentage of fraud detection. However, this is not the case, as in instances of bribery and corruption, these mechanisms are not as effective as an ethical reporting line

Conclusion

Combating fraud must be carried out through the comprehensive and systematic effort of an integrated anti-fraud program. However, establishing an anti-fraud program that does not include an effective ethical reporting line will almost always be a futile effort in which the organization will not become aware of nearly half of the frauds it is subject to, and therefore cannot act effectively

SHOGUN can assist you in implementing the ethical reporting line for your organization, a key component for implementing a Corporate Anti-Fraud

Author: Guillermo Casal
International consultant and trainer in fraud prevention and investigation and anti-money laundering. He is a Certified Public Accountant, holds a Master's degree in Economics and Administration, and has six international certifications, including the CFE (Certified Fraud Examiner), CIA (Certified Internal Auditor), and CISA (Certified Information Systems Auditor).