Frontline Impact: 3 Practices For Creating Organizational Fraud Awareness

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GUEST BLOGGER

Katherine Peavy
Head of Program Management
Center for Responsible Enterprise And Trade (CREATe.org)

 

Consider the fines in three recent Foreign Corrupt Practices Act (FCPA) cases:

  • In July 2014, gun-maker Smith & Wesson settled FCPA charges with the Securities and Exchange Commission (SEC), paying $2 million in fines and disgorgement.
  • In December 2014, the Bruker Corp. settled an FCPA enforcement action with the SEC for $2.4 million.
  • Also at the end of 2014, France’s Alstom S.A. pled guilty to corruption charges and was fined $772 million by the Department of Justice (DOJ).

While the fines in these cases are large, rarely is the frontline impact to employees, managers and shareholders discussed. At the very least, employees involved in the corrupt acts have their employment terminated. But often you see companies involved in FCPA cases laying off large numbers of employees, or even selling business units as Bruker and Alstom did. Additionally, stock prices take a hit, at least temporarily, when a DOJ or SEC case against a company is announced. For example, Smith & Wesson’s stock price in June 2014 reached $16.68 per share, but after the settlement announcement in July, it plummeted to nearly half that with a low of $9.54 per share in October.

Fines, investigative costs, legal fees and loss of employee, customer and shareholder trust all take a toll. At the Center for Responsible Enterprise And Trade (CREATe.org), our work on anti-corruption compliance programs with multinational corporations has highlighted areas where companies need to improve management processes and increase organizational awareness of anti-corruption compliance. It is precisely at the frontline with employees where companies need to invest resources in order to create the organizational awareness that will prevent fraud and protect jobs, profits and share prices. 

There are many steps companies can take to fully embed anti-corruption programs across an organization. As a starting point, below are three practices for improving organizational awareness around anti-corruption compliance from CREATe’s whitepaper, Why Anti-Corruption Programs Fail: Turning Policies into Practices.

  1. Engage Your Employees
    In both the Smith & Wesson and Bruker cases, the companies failed to engage employees in foreign offices sufficiently to communicate policies and procedures designed to prevent corruption. Engagement on anti-corruption management practices must go beyond translating Codes of Conduct and Statements of Ethics into local languages.

    A key success factor in engaging frontline employees in preventing corruption is communication by their own leadership. Germany’s Siemens implemented a process the company calls “Integrity Dialog,” in which managers discuss recent compliance matters with their teams. The dialogs serve the dual purpose of engaging employees and managers in discussions on anti-corruption compliance.
     
  2. Focused, Customized Training and Communications
    The DOJ’s press release announcing Alstom’s settlement of corruption charges noted that even after a previous corruption case, the company did not implement specific training and communications to set expectations for employees in preventing corruption.

    In complex global businesses, annual training on anti-corruption compliance often isn’t enough. Using more routine communications via onsite meetings by senior compliance leadership and the company intranet, and customizing training to the region, is critical to closing the gap in training and communications.
     
  3. Encourage Reporting and Questions
    The ACFE’s 2014 Report to the Nations on Occupational Fraud and Abuse notes that in detecting corruption:

    Tips are consistently and by far the most common detection method. Over 40% of all cases were detected by a tip — more than twice the rate of any other detection method. Employees accounted for nearly half of all tips that led to the discovery of fraud.

    Indeed, most of the high profile corporate fraud cases of the past 20 years, from Enron to Madoff, were uncovered due to courageous whistleblowers alerting the company, the government or the public to the situation.

    For the whitepaper Why Anti-Corruption Programs Fail, CREATe interviewed a number of compliance executives who stated that a critical tool in their compliance programs is encouraging reporting and questions. Actions include offering incentives such as an annual Chairman’s award to whistleblowers and employees who have stood up for anti-corruption compliance in the organization. Some of the same compliance executives state that they also hold one-on-one meetings with employees in different offices to emphasize company support for reporting and questions on corruption prevention.

In CREATe’s work with the employees and suppliers of global organizations, cascading management systems that include policies and procedures to prevent corruption is key to a company’s success with its anti-corruption compliance program. Engaging employees, focused and customized training, and encouraging reporting and questions leads to frontline organizational awareness of the management systems and business processes that are critical to detecting and deterring fraud and corruption.

Katherine Peavy is head of program management for the Center for Responsible Enterprise And Trade (CREATe.org), a non-governmental organization dedicated to helping companies around the globe prevent piracy, counterfeiting, trade secret theft and corruption. She is a global compliance executive with more than 15 years' experience in China managing multicultural teams to implement compliance programs and complete corruption investigations, most recently for Wal-Mart.