Tuesday, 30 October 2007

Supporting whistleblowers

Last week’s Personnel Today included a short story on fraud. I’ve already posted on a similar survey looking at issues associated with a potential influenza pandemic and this is another key issue which is easy to miss as HR focuses on its strategic agenda.

Firstly, the Personnel Today story:

Fraudsters are costing British businesses a staggering £4m a day, according to new research. A survey from accountants BDO Stoy Hayward has revealed a 40% increase in reported business fraud in the UK last year, with the total sum lost around £1.37bn. The most common scams include bogus invoicing, manipulating of accounts and ghost employees appearing on company payrolls.

The warning follows the annual Global Economic Crime Survey by business consultancy PricewaterhouseCoopers, which revealed that the average cost to UK businesses affected by fraud had doubled to £1.75m in the past year.

The survey found a 21% increase in the implementation of whistleblowing systems, but half of the 5,400 respondents said they were effective, and only 3% of serious incidents were detected by such systems.

Stuart Little, commercial litigation partner at law firm Shoosmiths, warned that size was no protection for companies when it came to fraud.

“Employee fraud is now one of the largest problems that UK businesses have to face, and the problem is escalating. Some of the most vulnerable sectors are recruitment, where we have seen many cases of temporary workers falsifying timesheets, as well as IT, where there have been problems with wholesale fraud.”

Little said the best way for businesses to protect themselves was to create an anti-fraud culture where whistle-blowers were happy to come forward.

“We advise companies to tighten internal procedures to clarify the amounts that have been claimed from them and keep electronic evidence as this will help support any potential claims. Be proactive with regular checks, particularly for ghost employees and contractors, and issue legal proceedings for the amount fraudulently obtained.”

My response which was summarised in Personnel Today was that although business and in particular, employee fraud is clearly a significant issue for most organisations (and troublingly, PwC's, BDO’s research and Shoosmiths’ comment suggest that the problem is getting worse), I’d suggest that just focusing on the problem isn’t going to provide the whole solution.

The right internal procedures and controls will help to manage the problem, but if people are going to engage in fraudulent activities, they will soon find other means of doing this once one activity is controlled.

The real issue is why employees are conducting fraud. Have recruitment processes failed to select honest people? Or has trust between the organisation and at least some of its employees completely disappeared?

Positive psychology suggests that focusing on a problem just tends to make this problem more likely to occur. A good example is absence management. If absence is a problem, there are certain things that an organisation can and should do to reduce it. But even more importantly, the organisation needs to improve the engagement of its staff.

Engaged employees will not participate in fraud, and will also be less likely to tolerate those few who do. This is why I agree with Stuart Little’s comment that the key is creating a culture in which whistle-blowers are happy to come forward.


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