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oversee the functions on an ongoing basis
(i.e., segregation of duties). Likewise, all
purchases, payroll and disbursements
should be authorized by a senior-level man-
ager. And conflicts of interest arising from
transactions with an employee’s family
member or friend should be prohibited or,
at minimum, closely supervised.
In addition to mitigating risk, strong
internal controls lead to detecting the
fraud. According to
Global Profiles of the
Fraudster
, more than 70% of fraud was
detected by internal controls alone or in
conjunction with other factors such as
whistleblowing.
Is Internal Whistleblowing Helpful?
As noted above, internal whistleblowing
and informal tips are the most common
means of fraud detection. And, according
to
Global Profiles of the Fraudster
, internal
whistleblowing is critical to detecting
sophisticated forms of fraud designed to
circumvent even the strongest of internal
controls. Businesses should establish a
culture of compliance and promote, rather
than discourage, internal whistleblowing.
In addition to detection, a proper whistle-
blower program has other benefits. For
example, it demonstrates a “tone at the
top” and an organizational culture that
encourages a commitment to compliance
with the law. A culture of compliance is
critical when dealing with regulators under,
for example, the United States Federal
Sentencing Guidelines.
The specifics of a strong whistleblower
program depend on the unique characteris-
tics of the organization. There are, however,
core principles. A strong whistleblower
program has the full support of manage-
ment. It allows for anonymous tips to
mitigate fear of retaliation from coworkers
(note, however, some countries prohibit
anonymous internal whistleblowing). A
strong whistleblower program will desig-
nate an impartial person to receive the tips.
Reporting should be available around the
clock via multiple means (phone, email
and text). And those on the receiving end
of the whistleblower hotline should imme-
diately begin investigating any credible tip.
Finally, a proper whistleblower program
expressly prohibits retaliation. Indeed,
anti-retaliation policies are essential in
many industries, such as the securities and
commodities industries governed by the
Dodd-Frank Act.
What About Employee and Third Party
Background Checks?
Another key first step in avoiding fraud
is performing proper background checks
on all employees. A background check
program begins with requiring the appli-
cant to provide information (usually on
an application form)
and supporting docu-
mentation
concerning prior employment,
education, certifications, addresses and
criminal events. Independent checking
of claims is critical, depending on the
importance of the post. Even the most
extreme resume padding can occur. Take,
for example, the embarrassment Notre
Dame suffered when it hired George
O’Leary to be its head football coach, only
to find out shortly thereafter that he had
misrepresented his college football career
and never obtained a masters from “NYU-
Stony Brook University,” a school that
does not even exist. Certain documents
should be provided in their original form
for verification, with copies retained by
the employer. Requiring a certification or
signature attesting to the accuracy of the
information is helpful as well. Third party
vendors should be employed to perform
appropriate criminal records searches and
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