Fraud can be devastating to an organization
GlaxoSmithKline (GSK) knows how devastating fraud can be to an organization.
The company, and its executives, have been accused by the Chinese government of funnelling hundreds of millions of dollars in bribes to doctors and health officials, forcing GSK to terminate many senior executives.
But GSK isn't the only organization having a war with corruption. Last year, Walmart India suspended several executives, including its CFO and CEO, after examining potential violations of US anti-bribery laws. As well, US authorities are investigating Cadbury India for alleged bribery.
And while we're still in India, Adidas India pressed criminal charges against, and terminated, its country manager and other higher-ups. They've been accused of defrauding the organization of over $150 million.
These are all large organizations, who have worked hard to be where they are today. So why all this fanfare?
They had all the basics down - implementing a code of conduct, written policies in place, tight controls, etc. However, they still fell victim to fraud by their own senior leaders. The biggest corruption risk companies face is their own employees not being quite so honest. This could have something do to with the rising pressure senior executives face with financial performance. "Cooking the books", making side agreements with customers and partners, and packing the channel with inventory is of serious concern.
And of course, greed is a key driving factor in fraud. It starts small, and once a person feels comfortable that they can get away with a minor incident, it slowly escalates until it becomes a beast.
Accepting kickbacks from vendors and advertising agencies, commissions on real estate transactions, a deposit in an overseas bank from the successful acquisition or sale of an organization - just another day at the office.
Organizations need to take multiple precautions to protect themselves against employee fraud risk. Yes the basics need to be in place, like GSK, Adidas, and Cadbury and Walmart had. But ask yourself - have you implemented a formal code of conduct that includes mandatory training for every employee from the ground up, and annual re-certification?
Is the organization's code of conduct communicated to customers and vendors/dealers? How does the organization investigate problems when they arise? And is punishment decisive and fair, and perhaps public depending on the size of the organization?
Clear policies, procedures, and processes with strict controls are necessary measures, but the most important part is having strong leadership and a culture of compliance. The tone set at the top level is critical especially in a hierarchical culture.
A zero-tolerance policy is vital
A sense of entitlement in small things is often a predictor of bigger problems. During the hiring process, or performance reviews, not many organizations discuss the character of their leaders. It's all about performance, hitting the big numbers, getting the big deals, etc., that are driving factors. However, it's the attention to small details that are important - segregation of personal phone calls, appropriateness of business expenses, lifestyle, and yes, addiction to status symbols and personal use of organization assets.
Usually, employees are aware of suspicious conduct before it's officially discovered, but they won't blow the whistle if they feel unsafe in coming forward to voice their concerns, or if they feel that upper management won't punish the wrongdoer. So when it comes to ethics and compliance, culture and leadership really do matter.
Organizations are going global and expanding into emerging markets. With that comes dynamic talent and opportunity. Unfortunately, many of these societies are corrupt, and dealing with corruption is a new core competency that no global organization can do without. Executive leadership needs to ensure that every employee in every part of the world is absolutely clear about what conduct is acceptable and what it not. In too many organizations, when fraud is discovered, the response is shock and dismay; middle managers and frontline employees are conveniently made scapegoats - life goes on - until it all blows up and millions of dollars are at stake.
All it takes is one brave whistleblower to come forward with information on internal fraud, and the organization to act on that complaint effectively and efficiently, to prevent a financial disaster. Having an ethics reporting system where employees can anonymously report on any unethical incident, can help eliminate any frauds that might occur.