Corporate integrity: employee training on fraud awareness and ethical conduct

February 2024  |  SPECIAL REPORT: CORPORATE FRAUD & CORRUPTION

Financier Worldwide Magazine

February 2024 Issue

In today’s dynamic business landscape, companies, regardless of their size or industry, face an increasing need to strengthen their defences against fraud and unethical conduct. A cursory review of the headlines reveals numerous instances of reported fraud committed against businesses, with significant economic losses resulting from these activities.

Employee training programmes play a pivotal role in fostering awareness, promoting ethical behaviour and mitigating the risks associated with fraudulent activities.

A starting point is to define ‘fraudulent activities’. This definition should be broadly cast for training purposes, to cover activities by both ‘insiders’ of the business (owners, directors, officers or employees) and ‘outsiders’ (vendors and other contracting parties, as well as third parties with no preexisting ties to the business).

Against that broad backdrop of potentially bad actors, the types of fraudulent activities that employees need to be aware of include those set out below.

First, misappropriation of business funds as a result of a cyber breach or an employee stealing or diverting funds, altering invoices or even misusing a business’s corporate credit cards.

Second, false expense reports, whether created by employees or consultants who are authorised to seek reimbursement for expenses.

Third, payroll manipulation, including altering of time records to claim hours worked that were not in fact worked, or taken to the extreme, creating a payroll record for a person who does not in fact work for the business, whether as an employee or consultant.

Fourth, tangible property misappropriation, whereby an employee resells business supplies or equipment and pockets the proceeds.

Fifth, data theft, which includes stealing customer lists and other confidential information or intellectual property of the business, and personally benefitting from its use or sale.

Sixth, working for multiple businesses simultaneously, a phenomenon made easier in an era of remote work arrangements.

Lastly, acceptance of gifts or payments in exchange for preferential treatment or the awarding of contracts or business either by or to the company.

Why is employee training necessary?

Two principal factors make training compelling. First, the threat of fraud shows no signs of abating. With the advancement of technology and global business expansion, fraud has become more sophisticated and pervasive. As the backbone of all organisations, employees must be equipped with the knowledge and skills to recognise and combat fraudulent activities.

Second, a lack of employee training may place a business at grave risk of legal and reputational consequences in connection with fraudulent activities. A single instance of fraud can lead to financial losses and legal proceedings, and erode stakeholder trust. Comprehensive training programmes can empower employees to act responsibly and ethically, safeguarding the company’s reputation.

Hallmarks of an effective training programme

While any employee training programme is better than none, what are the hallmarks of an effective training programme? There are at least four, as outlined below.

First, a training programme’s core mission is to develop a profound and deep-seated awareness of fraud, from top to bottom. Employees should be educated on various types of fraud, including internal and external threats. Training sessions may include real-life case studies, examples and simulations to help employees recognise red flags and suspicious activities. These sessions should also include periodic fraud risk assessments during the course of the company’s fiscal year to maximise impact.

Second, the training programme should instil a strong ethical culture within the organisation. It should emphasise the importance of integrity, honesty and adherence to corporate values. Employees must understand how their actions contribute to the overall ethical framework of the company.

Third, the training programme should be tailored both to the unique regulatory compliance requirements applicable to the industry or industries within which the company does business across the globe, and to an individual employee’s precise business unit. For example, training that would be provided to members of a company’s sales department may differ from that provided to members of the finance, supply chain, purchasing or human resources departments. Training should cover relevant laws, regulations and industry standards related to fraud prevention and ethical conduct. This ensures that employees are aware of legal obligations and understand the consequences of non-compliance.

Finally, the training programme should have a reporting mechanism in place that is employee friendly. Employees need to feel comfortable reporting suspicious activities without fear of retaliation. Training programmes should educate staff on available reporting channels and the importance of timely reporting to prevent further damage. Once an incident of suspected fraud is reported, employees should be trained to respond promptly by initiating an investigation, documenting evidence and working with external investigators or law enforcement authorities.

Implementing a training programme

Every business has a unique culture and challenges, but a combination of the following four strategies could prove most effective in successfully implementing a fraud awareness and prevention training programme.

First, the programme could be designed to incorporate the use of interactive learning modules. Particularly if the workforce is geographically dispersed within one country or globally, learning modules could be delivered via online platforms, workshops and seminars to create interactive learning experiences. They could further incorporate quizzes, discussions and case studies to reinforce key concepts and make training memorable.

Second, the training programme should promote continuous learning and reinforcement. It should not be a one-time event. Instead, training should incorporate regular refresher courses, newsletters and updates to keep employees informed about the latest fraud trends and ethical considerations.

Third, the effectiveness of the training programme is directly tied to the involvement and buy-in of the company’s leadership. They play a crucial role in setting the tone for ethical conduct. Senior management should actively participate in training to demonstrate their commitment to a fraud-free, ethical workplace.

Finally, training should have measurable performance metrics to evaluate the effectiveness of the programme. Regular assessments and feedback mechanisms will help identify areas for improvement and ensure that employees retain and apply the knowledge gained.

Conclusion

Comprehensive employee training programmes are essential for creating a workforce committed to ethical conduct. By investing in ongoing education and awareness initiatives, organisations can foster a culture of integrity, safeguard their reputation and build a resilient defence against the evolving challenges of the business world.

 

Manjit Gill is a senior attorney advisor with the Bryn Law Group. He can be contacted on +1 (305) 374 0501 or by email: manjit@brynlaw.com.

© Financier Worldwide

BY

Manjit Gill

Bryn Law Group

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