Why Top Management Fraud Schemes Are More Costly
Most occupational frauds are committed at the employee or management level, but frauds by owner/executives are much more harmful. The median loss in fraud schemes committed by owners/executives is $600,000, according to ACCFE 2020 Report to the Nations.
Finding the right fit
Integrity and character are vital to any position of authority; however, finding the right people with good character can be a hit and miss. Often organizations hire for example, a CFO or Financial Controller, with hopes that they will put the proper controls in place. These controls are to protect the assets of the organization, as well as the integrity of the financial statements.
Who are the gatekeepers?
Top management positions require an extreme level of trust, such that these individuals are left as the gatekeepers.
As gatekeepers, they set the “Tone at the top”. This refers to the ethical climate they create. The tone set, has a domino effect, and will either encourage or discourage employees from upholding integrity and ethical values. Thus, the foundation for the prevention and detection of fraud rest with top management. A good governance structure implemented by top management is important and should be reflected in their actions and not just on paper.
How fraud committed by top managements destroys the framework
Fraud schemes committed by top management destroys the foundation of an ethical climate, when uncovered. As we all know, a house without a proper foundation will not stand. Consequently, some employees will see an opportunity to commit or continue to commit fraud. Acts of fraud by top management, perceptively destroys the barriers and opens the flood gates. These acts can be discouraging to honest employees, as well as encourage others to develop a nonchalant attitude towards vital operational controls.
Top management fraud schemes cost organizations much more than the value of the loss. These schemes result in a deterioration of the entire organizational structure and image, and may take years to be corrected, if at all.
