Fraud Risk Shifts to Senior Management as Regulators Crack Down

=====================================================

A recent survey in Namibia has revealed that 58% of economic crimes are committed by internal actors, sparking concerns about the integrity of senior management. The findings have significant implications for businesses and governments alike.

Transparency and Accountability Take Center Stage

The survey, conducted by a leading international organization, highlights the growing importance of transparency and accountability in both the private and public sectors. In recent years, scandals involving corporate and government leaders have led to widespread outrage and calls for greater scrutiny.

• 16% of reported internal frauds were committed by senior management, suggesting that the risk of fraud has “graduated” from being an operational issue to a strategic business challenge that requires dynamic management at the highest level.
• The survey also found that reputational risk now outstrips regulatory risk, with companies facing punishment from all corners for their perceived inability to respond appropriately to an issue.

Reputational Risk Outstrips Regulatory Risk

The report suggests that companies are increasingly focusing on containing reputational damage through increased spending on investigations and other interventions. However, this approach may be reactive rather than proactive, with some experts arguing that companies should focus more on preventing fraud in the first place.

• The consequences of failing to respond appropriately to an issue can be devastating, including damage to employee morale, business relations, and brand strength.
• In response to these findings, many organizations are increasing spending on investigations and other interventions to contain reputational damage.

Leadership Accountability: A Key Factor

The survey also highlighted the importance of leadership accountability, with CEOs and boards being held personally responsible for ethical or compliance breakdowns. The report notes that almost every serious incident of fraud had been brought to the attention of senior management, but it remains unclear whether they are doing enough to address these issues.

A Brighter Future: Start-Up Companies Lead the Way

Despite the challenges, there is hope for change. Many start-up companies are being led by younger entrepreneurs with an ethical viewpoint entrenched in their genetic composition. These firms are ideally positioned to embed up-to-date fraud data analytics from the start, giving them a competitive advantage in an era of multiplying frauds.

• The C-suite should be careful not to do the same as investors who often turn a blind eye to bad behavior as long as their investment is not threatened.
• When businesses misbehave, they can lose goodwill faster than they acquired it.