According to ACFE estimates, fraud costs organizations fully 5% of annual top-line revenue. This enormous cost is serious enough, but it is compounded by the fact that fraud is a hidden crime that erodes an organization’s capacity from within.
Consequences can go beyond monetary losses to inflict damage on morale, trust and transparency. These kinds of costs endure far beyond the triggering event.
Recognition is the First Step in Fighting Fraud
In 1973, criminologist Donald Cressey first published his theory about fraud, highlighting the now famous “fraud triangle”, which says fraud occurs when the fraudster feels financial pressure, his or her organization presents an opportunity, and the person can rationalize the theft.
The first few words of his hypothesis capture the essence of this crime, and why it is difficult to confront: “Trusted persons become trust violators…” In other words, there is an internal conversion that turns an employee (at any level) into a thief.
The value of the fraud triangle is that it helps us to look at the objective factors that have to be present for fraud to occur. Recognizing these objective factors helps to define actions you can take to help prevent fraud, partly through organizational policy controls and partly through managing the relationship with employees to encourage openness and trust.
Our latest infographic summarizes the factors that must be present for fraud to occur, and gives you a few ideas about how to combat it.
This is a guest article from Andrew Carraway, Esquire, Attorney with Lowers & Associates
In our current fast-paced business environment, it is getting harder and harder for a company to solely rely on its in-house staff to resolve legal disputes and conduct the necessary due diligence reviews of customers and suppliers. Out sourcing and specialized consultants have become necessities. It is now likely that any company that has retained the services of a law firm will find the category of “litigation support” featured prominently on invoices for services provided by the law firm. In this short article, we will explore what the concept of “litigation support” entails and the necessity for law firms and other businesses to utilize these services.
Litigation support has been defined as “the process of providing consultation and support services to attorneys or others in regard to current and pending cases.”[1] Litigation support services can range from legal research, to the valuation of property, to determining the extent of damages incurred in an accident or injury, and perhaps forensic accounting services to trace out fraud, waste, and abuse in financial activities. As our world becomes more complex and information transforms from the written page to digital material maintained on a server or in a cloud, more and more litigation support is being focused on digital formats, coining a new term E-Discovery. E-Discovery refers to the discovery of information in civil litigation which deals with the exchange of information in electronic format, i.e. electronically stored information.[2] E-Discovery is frequently utilized by law firm and business support staff, outsourced by the firm to specialty groups whose sole role is to extract and analyze evidence supplied by attorneys using digital forensic procedures which are incorporated into a document review format.[3]
A comprehensive Enterprise Risk Management (ERM) strategy can help protect your reputation by preventing events that damage it.
Reputation is an intangible asset. Much research and many seasoned observers agree that a good reputation enhances customer loyalty and purchase behavior, market value of the business, hiring and retention success, and brand image. Many of these factors are reflected in the asset we call “goodwill.”
Managing Reputational Risk in ERM
Reputational risk (or ‘reputation risk’) is one of the costs of events such as adverse actions for negligent hiring or publicized high-level fraud. Events like these are precisely the types of risky outcomes that your systematic ERM strategy aims to identify, evaluate, and mitigate. We do not have space to provide an exhaustive list of reputational risks, but we can illustrate the point that preventing selected negative outcomes can help protect your reputation, not to mention your bottom line.
“Almost everything that can go wrong in a business has a human capital component.” This quote from David Creelman of Creelman Research points out the critical importance of managing human capital risks. Often, risks associated with human actions are given only cursory attention until “something bad happens”. Unfortunately, when one of these risks contributes to a loss, it can be very costly in terms of brand, reputation, morale, or revenue.
Human capital risks commonly stem from these five critical areas:
Complacency
Turnover
Occupational fraud
Catastrophic workplace events
Negligent hiring or retention
This latest infographic summarizes each area and offers tips to help organizations better manage their human capital risks.
An employer is exposed to risk caused by the conduct of an employee whether or not such conduct is within the course and scope of the employee’s employment. Focusing your organization’s human capital risk mitigation measures on only one of these areas of potential exposure may be hazardous to the financial and reputational health of your organization.
Respondeat Superior
Respondeat superior is a general legal liability doctrine that holds an employer responsible for a negligent act or omission of an employee acting within the course and scope of employment. This is a vicarious theory of liability, meaning there needn’t be a finding of any improper action by the employer. The reasonableness of an employer’s actions (e.g., its hiring, supervision and retention of an employee) is irrelevant and provides no basis for the avoidance of employer liability for the acts of an employee. However, in order for the employer to be found liable the complainant must prove the employee acted within the course and scope of employment. … Continue reading
An employer is exposed to risk caused by the conduct of an employee whether or not such conduct is within the course and scope of the employee’s employment. Focusing your organization’s human capital risk mitigation measures on only one of these areas of potential exposure may be hazardous to the financial and reputational health of your organization.