Last week’s blog was about the three types of fraud and how to prevent them. Typically, organizations lose 5 percent of revenue to fraud each year. Think about how much that means to your organization’s bottom line. Not pretty. Fraud hits smaller organizations and nonprofits even harder, which means a bigger bite out of annual revenue.
The Association of Certified Fraud Examiner’s 2018 Report to the Nation on Occupational Fraud and Abuse says that the median loss of fraud cases examined over the last two years was $130,000. Twenty-two percent of losses exceeded $1 million!
Organizations can be reluctant to report fraud to law enforcement for two related reasons – bad publicity and poor internal disciplines. Reputations and bottom lines are hurt when a fraud case is exposed in the headlines. It’s even worse when the story behind the headline reveals that financial controls and oversight were so lax, the organization essentially handed the stolen funds to the fraudster.
Financial controls that fail to detect or prevent fraud are the symptom of a larger issue – poor workplace culture. What is that, and why is it important? Workplace culture is the personality of an organization – the values, accepted behaviors and attitudes that make the environment and its people work together.
Part of a strong workplace culture is promoting ethical, honest and transparent actions, starting with senior management. A strong tone at the top goes a long way to letting everyone in the organization know that dishonest and unethical behavior is not tolerated. Fraud is less likely to occur in an organization with strong workplace culture and tone at the top.
So here’s the ironic part. In a recent report, The Culture Economy, 60% of smaller business leaders think that strong organizational culture is a “nice to have” thing, not a necessity. What?! Just look at the fraud statistics to see how essential workplace culture is to the financial success of an organization. Sure, not everyone working in a place with lax financial controls is going to commit fraud; but lax controls make it easy for the dishonest or financially-stressed employee to steal or engage in corrupt practices.
A strong workplace culture lets your employees know that fraud and other dishonest behavior will not be tolerated. Of course, strong financial controls and oversight are important. Clear messaging about expectations and appropriate actions go a long way to making sure your employees know that fraud will not be tolerated.