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'Fraud Control Gap'
A 2007 study by our firm's Deloitte Forensic Center revealed relatively weak performance in many companies' fraud controls, raising concerns about the effectiveness of key aspects of corporate compliance, ethics and risk management programs. In-house counsel should consider how the findings might apply to their companies and what remedial steps they can take.
The study, which evaluated executives' views about the effectiveness of their companies' practices for controlling fraud, had five key findings:
- There is a substantial self-reported 'fraud control gap' between the minority of companies that were considered in the study to be more effective at fraud control and the majority of companies that were considered less effective. The size of the gap is so large that it raises concern about the fraud risks that less effective companies may be running.
- Executives reported that their companies were much less effective in controlling external fraud than internal fraud. This area of vulnerability creates risks particularly for companies increasing their international business activities ' a common occurrence as globalization takes root.
- Only 32% of executives surveyed believed their whistle-blower hotlines were very effective. Since hotlines are a critical part of compliance, ethics, and fraud risk management programs, executives' lack of confidence in them suggests that improvements are widely needed.
- For the less effective companies, only 12% of executives said that their employee training on fraud was very effective.
- Executives at the more effective companies anticipated that instances of fraud were much less likely. This supports the business case for enhancing fraud controls.
In-house counsel can use the detailed results of this study to identify potential areas of opportunity for improving the performance of their compliance and ethics programs that deal with fraud and other corporate criminal issues. We explore each of these findings and their implications in greater depth below. An explanation of the study methodology appears in the sidebar below.
Fraud Control Gap
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