Authors: Rahul Samdani: Director - Forensics, BDO UAE & Zeeshan Shahid, Senior Director - Forensics, BDO Saudi Arabia
Corporate fraud remains an insidious threat to every organisation. As the Association of Certified Fraud Examiners note, ‘The key to the success of these efforts is a strong, strategic and consistent message that can translate fraud awareness into action’. Incidents of fraud have witnessed a concerning rise, emphasising the critical need for organisations to review their corporate governance structures.
Key themes that aid perpetrators of alleged frauds and limit the ability of businesses to identify issues in order to effectively manage incidents afterwards are listed below:
- Over-trust of senior management:
- A recurring theme, where blind faith in senior officials becomes a breeding ground for fraudulent activities
- Centralised authority risks:
- Concentration of decision-making power in a single individual, leading to unchecked authority and potential misuse
- Stellar individual performances:
- Red flags often hide behind stellar individual achievements with high achievers, often favoured by management inadvertently becoming conduits for fraudulent activities
- Closed communication channels:
- The establishment of barriers between junior staff and ownership, obstructing the flow of information and concealing potential issues
- Lack of segregation of key business function duties:
- Perpetrators circumvent spending or purchasing limits through a combination of roles
- Information ‘walls’:
- Perpetrators restrict access to information through different strategies to avoid oversight or monitoring.
Addressing these red flags requires a proactive and strategic approach:
- Diversified decision-making:
Implement a decentralised decision-making structure to disperse authority and prevent concentration of power - Holistic performance metrics:
Shift the focus from individual achievements to collective team successes, encouraging a balanced and collaborative work environment - Open communication channels:
Foster a culture of open communication by breaking down hierarchical barriers, enabling direct dialogue between junior staff and top leadership - Regular audits and reviews:
Engage external auditors for periodic and comprehensive reviews, ensuring accountability and extending beyond limited areas of review. Audit Committees should ensure that internal and external auditors have free and unrestricted access to all sources of information - Ethics training:
- Include mandatory annual or biennial fraud and corruption awareness training which covers fundamental details to fortify the organisation's commitment to integrity
- Thorough due diligence:
- Prior to acquisitions, conduct comprehensive due diligence by asking the right questions to ensure a thorough understanding of potential risks and issues.
In the face of mounting corporate fraud, organisations must heed the warnings outlined above. By implementing robust solutions to the identified red flags, a new era of corporate governance can emerge - one that is characterised by transparency, accountability and a collective commitment to ethical practices. It is through these deliberate measures that organisations can not only mitigate the risk of fraud but also redefine their narrative, ensuring a foundation built on integrity and sustainable success.
How can BDO Forensics help?
In the fight against white collar crime, our team has a deep understanding of fraud and corruption risks across industry sectors and geographies, together with extensive practical experience in carrying out forensic investigations, anti-bribery and corruption reviews, anti-fraud programmes and control advisory, fraud risk governance consulting and related areas. BDO can help in identifying key fraud risk opportunities and recommend related robust safeguards from our global experience. For any questions around this article - or if you are seeking advice of any sort on the back of an incident, potential issue, whistle-blower complaint or related matter - please feel free to reach out to the BDO experts in your local firm.