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Fraud Exprosed Whot you Dont Could Cost your company millions - Joseph W.

Joseph W. Fraud Exprosed Whot you Dont Could Cost your company millions - Wiley Publishing, 2003. - 289 p.
ISBN: 0-471-27475-5
Download (direct link): fraudexposedwhatyoudont2003.pdf
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Anthony Green, writing in the Spring 2002 edition of Chief Legal Officer magazine, lays out an even more stark rationale for compliance programs—civil liability. He cites a study, “D&O Current Developments,” by Arter and Hadden, that indicates that since mid-1999 the size of settlements in director and officer litigation has risen dramatically. There have been more than a dozen settlements or judgments in excess of $100 million, and one-third of these were in excess of $200 million. He also notes that Jury Verdict Research reports that from 1994 to 1999 median jury awards in business negligence cases have risen 128 percent, and that the plaintiffs’ bar that pursues such matters is now larger, better funded, and more aggressive. Further, he advises that Robert Hartwig, PhD., a senior vice president and chief economist at the Insurance Information Institute, revealed in a recent interview that today one in five jury awards is $1 million or more, versus one in four in 1994, and that one business in 10 has had a liability loss of more than $5 million in the last 10 years.14
One of the effects of this environment, he notes, is increased emphasis on, and cost for, insurance. He reports that a recent survey of 2,400 U.S. firms by March Inc., reported in Investor’s Daily, indicated that firms with more than $5 billion in sales raised their liability coverage an average of 5.4 percent, to $314 million, and firms with less than $500 million in sales reduced their liability coverage by
8.8 percent, to $52 million.15
Compliance programs can be seen as having a number of sources and an even greater number of nuances. They may be affected by how the organization envisions itself and what codes it sets for its own conduct; they can be influenced by the associational relationships the organization has or desires to establish; they may be mandated by instances of past conduct on the organization’s part; or they may be set by the nature of the organization’s business, such as being in foreign trade. For this reason, while all compliance programs are to some degree the same, it is unlikely any two are identical.
In the event an organization runs afoul of the law and comes under the purview of the Federal Sentencing Guidelines, the existence of a competent compliance program meeting the seven criteria of the guidelines can have a significant mitigating effect on punishment the organization may face.16 Such consideration is mandated by the guidelines in a formula to be used by the sentencing judge.
Although without the direct, and by definition criminal, impact of the U.S. Federal Sentencing Guidelines, somewhat similar standards for risk management are already in effect in a number of other countries. David McNamee cites the following examples:
Several authoritative bodies have addressed the need for more guidance on risk management. The Australian/New Zealand Joint Standards Committee was the first to codify standards of risk management, with its release of AS/NZS 4360 Risk Management in 1996. The Canadian Standards Board followed in 1998 by releasing CAN/CSA-Q850/97 Risk Management: Guideline for Decision Makers, which provides a framework that decision-makers can use to assess and communicate risks. In addition, BS 6079-3 Guide to the Management of Business-Related Project Risk, which was published by the British Standards Institution in January 2000, presents a risk-assessment framework with special emphasis on project management.17
In thinking about compliance programs, it may be useful to try to conceptualize how they relate to issues of deterrence of occupational fraud. As can be seen from the various sources of guidance, many of them have little or no relevance, other than to set a tone of general and ongoing compliance within the organization. Others, such as those established by the Federal Sentencing Guidelines, are much closer in intent, but may also include things such as illegal environmental dumping, trade practices, or the paying of bribes to gain additional business. As we have seen in our discussion of definitions, many of these acts would meet one or more definitions of white-collar crime or economic crime, but they are not directly on point with controlling or detecting fraud in the workplace.
David Crawford, in discussing how his organization, the University of Texas System Audit Office, went about implementing the requirements of COSO’s Internal Control—Integrated Framework, addressed the issuance of redundancy between compliance audits and controls audits. He notes:
As we searched for a way to define the roles of the two assurance functions, we were concerned initially that internal auditing and compliance were both going to audit the same items in the same way. This practice seemed unproductive, and we knew that it would be unexplainable to both management and auditors.
Our deliberations led us to the conclusion that all control functions operate in a three-dimensional environment:18
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