HOW TO AVOID INTERNAL BUSINESS FRAUD

HOW TO AVOID INTERNAL BUSINESS FRAUD

A question was recently put in a discussion group, ‘What can you do to keep your business from becoming the victim of internal fraud?’.

The simple answer ‘Don’t trust anyone (Don’t trust job applicants, Don’t trust employees Don’t trust your partners)’ was offered by one writer.

I think the issue is much more complicated than simply not trusting anyone! IF YOU PORTRAY ‘ NO TRUST’ to all your business partners, employees, customers, etc., without taking the proper measures, you will likely make everyone want to commit fraud and prove you right, in your working environment!  The desire for security is a key subconscious motivator in developing trusting relationships in an any organization.

Let us not forget that as Aristotle (384-322 BC), writing in the Rhetoric, suggested that Ethos, the Trust of a speaker by the listener, was based on the listener's perception of three characteristics of the speaker: the intelligence of the speaker (correctness of opinions, or competence), the character of the speaker (reliability - a competence factor, and honesty - a measure of intentions), and the goodwill of the speaker (fri3ndship, favorable intentions towards the listener).

 Furthermore, my opinion is that you do need a friendly and trustworthy working environment but it should be complemented by a Corporate Controls Framework with control mechanisms at five levels:  

1. Corporate Philosophy Controls (Vision Statement, Mission Statement, Values Statement, Corporate Ethics Policy, Corporate Social Responsibility Policy, Corporate Ethics Office, etc.),

2. Corporate Governance Controls (such as risk management, internal audit, compliance office,  security standards, Board of Directors Charter, Corporate Committees, Corporate Policies, Corporate Processes and Plans, etc.),

3. Strategic Management Controls (vision, mission, strategy, targets, Corporate Strategic Planning Committee, Strategic Plans, Strategic Budgets, Strategy Implementation Action Plans, etc.),

4. Monitoring and Review Controls, and

5. Operational Management Controls (administration procedures, HUMAN RESOURCE MANAGEMENT controls, etc.).

The primary purpose of human resource management controls is to enable and facilitate the management of the human resources of any organization. The main types of human resource controls are: Human Rights Policy, Benefits and Personnel Committee, Personnel Administration Procedures, Employee Management Policies and Procedures Handbook, Human Resource (HR) Systems, and Human Resource Performance Measures.

Some of the most typical HR systems are: HR Hiring and Dismissal System, HR Planning System, Personnel Career Development System, HR Performance Management System, Organizational Work Evaluation System, Benefits and Incentives System, HR Computerized Information System, and Personnel Administration Procedures (screening, employment contracts and job descriptions, supervision, human resource plans, authorization controls, segregation of duties, rotation of duties, vacation taking, adoption of professional ethical standards, and employee documentation).

In closing, we should all remember the following quotation of Ralph Waldo Emerson:

”Trust men and they will be true to you; treat them greatly, and they will show themselves great.”

John Kyriazoglou (jkyriazoglou@hotmail.com)

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