Those engaged in the profession of auditing realize that the public expects auditors to do a much better job in detecting fraud even though our professional standards still do not hold us responsible for fraud detection. With regard to providing greater assurance as to the accuracy of financial statements, everyone in the Corporate Reporting Chain needs to do their part, along with company executives, corporate directors, information distributors, third-party analysts, investors and other stakeholders.
Bottom line….organizations need to put in place the best fraud prevention mechanism to mitigate the risk of material fraud.
I suppose it’s no surprise to hear people want short answers to complex questions. After all, this is America where we have a tendency toward the notion of getting things done “now” and as efficiently (i.e. cheaply) as possible. That’s OK, because after years of dealing with fraudsters and the companies they work for, I’ve gotten to favor the expediency of it all.
So what is that prevention mechanism? This answer to this question is really quite simple and it goes like this…
Put forth the perception in your organization that if you do something wrong, you will be caught… and the punishment for such will be swift and commensurate with the offense… no exceptions!
Notice I said “the perception”. Most (not all) people will be deterred from criminal activity if they believe they will be caught and punished. This is especially true of those who commit white-collar crimes. [Tom has a number of anecdotal stories, interlaced with practical techniques, of how proper controls have stopped otherwise honest people from committing criminal acts].
It all comes down to this….. Employees need to know their areas of responsibility, their limits of authority as well as understand that everyone in the organization needs to be monitored….everyone, from the mail room to the board room. No one gets a pass.