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Baker Tilly International catches up with the fraudsters

May 21, 2022

Corporate fraud is on the rise and companies of all sizes need to take better steps to prevent it. Addressing delegates at Baker Tilly International’s annual North American conference this week in Louisville, Kentucky, reformed 1960s fraudster Frank W. Abagnale – subject of the movie Catch Me If You Can – repeated his often used quote: “What I did in my youth is hundreds of times easier today. Technology breeds crime.”

The evidence is irrefutable. According to a 2012 report by the Association of Certified Fraud Examiners, it is estimated that organizations lose five percent of their total revenue to fraud, which translates into a staggering global annual loss of $3.5 trillion.

Bob Gray, partner at Baker Tilly International member firm ParenteBeard, whose area of expertise is forensic investigations, says, “In a down economy companies are forced to be more nimble, doing more with less. Staffing cutbacks can often lead to unintended consequences, such as allowing new access to assets for individuals who take on additional duties and responsibilities. With corporate deadlines and financial goals in view, companies often lose sight of the value of internal controls in preventing fraudulent employee activities.”

Leadership is Key

“Senior leadership’s attitude on fraud is foremost,” said Gray. “The threat of fraud and how to alleviate it needs to be taken seriously across the entire organization, particularly at the top. Although it’s important for companies to cross-check that all internal prevention controls are in place, it is equally vital for leaders to consistently set the appropriate tone on this topic. The ideal would be establishing a “tone-at-the-top” that educates employees early about the eye-opening financial losses that fraudulent activities can cost a company.

“In addition, it’s imperative to assure employees that coming forward with any information about fraudulent activities will be completely confidential and should not jeopardize their careers.”

Mr. Gray has led several investigations that initially appeared small but grew in magnitude over time due to a corporate culture where employees were afraid to speak up. For example, at one major law firm, Mr. Gray saw how an improper tone-at-the-top – lavish spending – was viewed as acceptable throughout the firm. As a result, fraudulent activities unfortunately developed and were rationalized by certain employees who mirrored the style that they saw their leaders take.

“It’s quite challenging to change corporate culture before a major incident actually occurs. We encourage clients to make their leadership team’s approach to this sensitive topic one that is pro-active, visible and shared throughout the entire organization.”

Importance of Simple Controls

Jeff Krull, a partner at ParenteBeard who focuses on information technology and cyber security says, “Management teams need to improve some of their more simple and straightforward security controls. It’s important to create plans to encourage stronger passwords, encrypt mobile devices and laptops, put an end to generic user identifications and limit who has powerful administrative access. Although these measures to improve security typically aren’t expensive, many organizations resist doing them until they experience a security breach.

“In many cases, because those things are relatively simple, leadership teams don’t see the immediate value. For example, ensuring documentation to evidence who granted access to the designated users may seem like an administrative burden. But forcing discipline and accountability around who is allowing access and why may prevent allowed admission that isn’t needed or presents a segregation of duties conflict,” said Krull.

When and if fraud is detected, it’s imperative to address the incident immediately and have an effective plan in place to minimize damage.”

About Baker Tilly International

Baker Tilly International is the eighth largest accountancy and business advisory network in the world by combined fee income of its independent members.

Every day, over 26,000 people in 156 member firms in 131 countries provide accountancy and business services to entrepreneurial, growing businesses and corporates worldwide.

For further information please contact:

Jo Luck, Brand and Communications Manager, Baker Tilly International, + 44(0)20 3201 8000, jo.luck@bakertillyinternational.com