Anti-Fraud Program

 

We provide important considerations below for management and audit committees as they evaluate their organization’s anti-fraud program, with assistance and support from counsel and other advisors:

 

Have adequate representation from qualified counsel who is well-versed in the rules and regulations of the SEC and exchange.

 

Evaluate the organization’s risks, culture, management operating style, internal resources and existing procedures regarding reporting of audit and accounting irregularities and fraud before designing the anti-fraud program. Understand the unique risks relating to fraud within your organization, within your industry and within the geographies where your company operates. Because there is no “one size fits all” approach when formulating an anti-fraud program, the answers and solutions will evolve as you learn more about your options, and are able to evaluate which ones fit best within your organization.

 

Integrate ethics policies and procedures for reporting fraud and accounting irregularities across business units, geographies and subsidiaries (including international locations, to the extent appropriate under local law).Strive for a common platform to receive, evaluate and investigate complaints, and in particular, one that includes new acquisitions.

 

Involve both management and the board in evaluating and strengthening the anti-fraud program. Understand the processes management already has in place to prevent, deter and detect fraud. Obtain the board’s support in strengthening the existing anti-fraud program, as it is difficult to enhance and/or execute in isolation.

 

Retain specialists, if needed, to design and execute the program. Identify forensic accountants, certified fraud examiners and fraud risk management specialists. Even if management (or the audit committed) doesn’t use these advisors right away, it is helpful to pre-qualify them in the event they are needed on short notice to conduct an investigation involving a sensitive matter.

 

Do the necessary homework with respect to evaluating the firms offering confidential reporting of complaints and other related solutions. There are many new firms offering various solutions related to whistleblower programs (e.g., hotlines, employee training and awareness programs, etc.).Some of there companies are better than others. Determine whether the vendor has adequate resources to service your needs. Examine the vendor’s experience and reputation. Ensure that the service-level agreement contracts include stipulations regarding confidentiality and completeness of timely information. Make sure the solution the vendor provides fits your needs. Organizations should consider establishing guidelines and other specialized protocols for call routing, service outages and contingencies, and operate or training.

 

Communicate the anti-fraud policy and program often within the organization. A comprehensive and ongoing communication strategy ensures that all employees understand(a) the importance of preventing fraud,(b) their role and responsibilities in the reporting of concerns and complaints involving potential violations of company policy, laws and regulations,(c)the confidentiality of such submissions, and(d) the organization’s expectations regarding ethical behavior.

 

Emphasize the appropriate level of independence with respect to the reporting and investigation of complaints. Simply stated, the person or group screening complaints or investigating complaints must not have a vested interest in the outcome. Substantial discretionary authority must be delegated carefully to ensure the appropriate independence.

 

Remember that Sarbanes-Oxley has specific provisions to protect whistleblowers. Ensure that your program includes sufficient investigative protocols and procedures to en sure that employees who report potential accounting irregularities and fraudulent acts are not singled out or discriminated against because of their actions. Make sure that confidentiality is maintained and anonymity promises are kept. Concerns or complains regarding fraudulent activity must be evaluated on an individual case-by-case basis in order to ensure proper treatment- especially those that are received on a confidential basis. The audit committee also should review the overall number and type of concerns or complaints received by the organization to determine if there are specific patterns that indicate a pervasive issue with an individual, department, geographic location, etc. As whistleblowers are provided with certain protections under SOA, most companies ensure that the Office of General Counsel and Human Resources are actively involved in remedial action resulting from investigations. This coordination is particularly important when letting someone go, reducing their compensation or passing them over for a promotion.

 

Understand and consider the implications of the Federal Sentencing Guidelines. Over a decade ago, the U.S. Sentencing Commission revised its sentencing guidelines and penalties to organizations convicted of criminal behavior. One of the effects of the revised guidelines was to set forth some minimum criteria for an effective fraud deterrence and detection program. It makes sense for management and the audit committee to ensure that their organization’s compliance program satisfies the criteria as defined by the sentencing guidelines. These guidelines can provide a baseline for evaluating established procedures and conducting periodical procedural reviews.