Question

Discusses how an organization should incorporate the learning's of the fraud triangle and ethics programs to reduce the risk of fraud/misconduct within their organization.

Answer 1

In order to know , how an organization should incorporate the learning's of the fraud triangle and ethics programs to reduce the risk of fraud/misconduct within their organization, first we should understand the concept of fraud triangle and ethics program.

Fraud Triangle :

Fraud Triangle is the concept of fraud deterrence and detection. it has three key elements which are:

• Opportunity
• Motivation
• Rationalization

Opportunity: The opportunity to commit fraud arises when employees have access to assets and information that allows them to both commit and conceal fraud. Employees are given access to records and valuables in the ordinary course of their job swhich allows them to commit fraud.

Motivation: It is a pressure or a “need” felt by the person who commits fraud. It might be a real financial or other type of need, such as high medical bills. It can also be nonfinancial. There may be high pressure for good results at work or a need to cover up someone’s poor performance. Addictions such as gambling and drugs may also motivate someone to commit fraud.

Rationalization: Employees may rationalize their behavior by convincing themselves that committing fraud is OK for a variety of reasons.It’s probably easier to rationalize a fraud for those who are generally dishonest than for those with higher moral standards.

How organisation should implement Fraud Triangle:

• The access must be limited to only those systems, information, and assets that are truly necessary for an employee to complete his or her job.
• Business owners and executives must take control of fraud by working on the portion of the fraud triangle over which they have the most control i.e. the opportunity to commit fraud.
• It may be difficult for management to do anything about an employee’s needs or rationalizations, but , the company can reduce fraud to some extent by limiting opportunities for it.

Ethics Program:

An ethics program helps communicate organisation’s business philosophy to employees, vendors, investors and customers. A good ethics program can help strengthen organisations's relationships with employees and customers and its reputation. It eliminates any confusion and provides everyone with the same information regarding ethical business behavior.

How ethics program should be implemented in organisation:

Identify and Renew Company Values: Values-based programs are most effective in reducing unethical behavior, strengthening employee commitment and making employees more willing to deliver bad news to managers.

Senior Managers support and commitment: Senior management support is crucial for an ethics program is to be successful. Senior managers should participate in training sessions, make ethics a regular element in speeches and presentations and align their own behavior with company standards.

Engagement of Board of Directors: Engage directors in the ethics process by instituting a board ethics committee or by placing ethics on the board agenda as a regular item for discussion. Consider special training to enable directors to carry out their ethical responsibilities confidently. Many U.S. companies have instituted board ethics committees and training in recent years, a move motivated in

Develop an Ethics Code : Comprehensive codes are aligned with company values and all applicable laws, address the full range of ethical dilemmas employees are likely to face and are updated regularly as new challenges emerge.

Build Ethics Into Mission and Vision Statements: Many companies build ethical values and goals into their mission and/or vision statements. This helps senior managers and employees understand that values and ethical standards are integral to all company operations and planning and not simply an “add-on” to be considered after important decisions have been made.

Integrate Ethics Into all Aspects of Company Communications: Leverage existing company infrastructure to demonstrate to employees that ethics is an integral part of all operations and decision making. Integrate ethics and compliance training materials into multiple delivery sources including new employee orientations, management courses, sales training, business meetings, business plans and other aspects of day-to-day activities.