Three-dose remedy for fraud, graft

It seems that fraud and corruption are quickly joining death and taxes as the certainties of our lives. PHOTO | SHUTTERSTOCK  

By JOHN KAMAU More by this Author

According to a recently released Eastern Africa report of the PwC Global Economic Crime and Fraud survey, 63 percent of respondents reported having experienced fraud and corruption within their organisation between 2021 and 2022. This is against 46 percent of respondents globally.

It would seem that fraud and corruption are quickly joining death and taxes as the certainties of our lives. So widespread and persistent is the problem that many entities, both public and private have resigned to the fact that they will have to lose part of their resources to these vices.

Whereas it may indeed be impossible to fully eliminate fraud and corruption, there are measures that if well deployed can reduce the problem significantly.

The measures need to be used consistently together and fall under three areas: ethical values, intervention, and resilience.

Put differently, organisations need to foster the right culture, ensure there are consequences for unethical behaviour and strengthen their anti-fraud controls.

Creating an ethical culture is probably the most vital and yet the most ignored element. Research has shown that having a strong ethical culture is more effective than having strong formal controls as a fraud deterrent.

A good ethical culture means that employees and other stakeholders do not consider fraud and corruption as reasonable or rational actions.

In an organisation where culture is off; pressure to perform, low risk of sanctions and wider societal acceptance of fraudulent behaviour leads to an environment where fraud and corruption are not only tolerated but also expected.

In such an environment, the two will be prevalent even with the strongest of controls. It is thus critical that organisations and indeed communities with a deviant culture work toward changing it.

Developing an ethical culture is a process that requires consistency and persistence. The proverbial ‘tone from the top’ is critical as most employees will follow what they see their leadership do.

Removing unreasonable targets and adequate pay can also help in easing the strain and pressure that leads to the rationalisation of fraud.

It is also important that organisations clearly stipulate what is acceptable and what is not to remove any ambiguity.

Compliance with laid down policies should then be enforced with proportionate consequences

Achieving an ethical culture requires that an organisation be able to identify cases of non-compliance and malfeasance.

Crime becomes attractive when an offender believes they have a good chance of benefiting from it and getting away with it.

Enhanced vigilance, therefore, means that crime becomes less attractive as an organisation is more likely to catch and act on the crimes.

The second element is intervention; which requires that an organisation first detects the fraud. As such, intervention encompasses both detection and response to such acts.

For effective detection, there needs to be clarity on what is and what is not acceptable i.e., what is fraudulent or corrupt behaviour and how it manifests.

Once that is clear, measures that help in identifying the acts and reporting then come into play.

Detection of fraud can be through a variety of ways. A fraud risk assessment is an important first step as it helps to define what fraud typologies exist and highlight areas that are at the highest risk.

This then helps to channel efforts aimed at detection and surveillance. Given that it is hard to identify what you do not know, it is important that someone with knowledge of how fraud manifests is involved for an effective counter fight.

For an intervention to be complete, the detection of fraud needs to be followed with appropriate responses. They should reinforce the message around the benefits of operating ethically and the consequences of not.

Consequences should include sanctions. Sanctions for fraud and corruption as with all other crimes should be swift, consistent, proportionate and where necessary, publicised.

The third and final dose of managing fraud is through increased resilience. This means making it hard for anyone to perpetrate fraud.

This is typically achieved through the strengthening of formal controls. Such controls include measures such as open bidding, segregation of duties, physical and IT access controls, staff and supplier screening, etc.

The goal in increasing resilience is to get to a point where the effort to commit fraud outweighs the reward as a result of the probability of being detected and the awareness of the consequences.

Mr Kamau is an associate director, of forensics advisory services, at PwC Kenya.

Email: john.kamau@pwc.com