What Your Company Can do to Deter the Costliest Fraud

costliest fraud

costliest fraudIn 2019, Garuda Indonesia airlines were proven to have manipulated their financial statements. As reported by Okezone.id, the Garuda Indonesia Group posted a net profit of USD 809.85 thousand or equivalent to Rp11.33 billion. This figure jumped sharply compared to 2017 when they suffered a loss of USD 216.5 million. However, their financial statements caused a polemic until they were proven to be incompatible with accounting standards after an audit.

Financial statement fraud losses

The tendency of companies to commit financial statement fraud is usually in-line with the demand to always make improvements to increase the value of the company. Which will ultimately be presented in the company’s financial statements. For this reason, companies often conduct earnings management in various methods to ‘beautify’ financial statements to win the hearts of investors.

According to the Association of Certified Fraud Examiners (ACFE, Report to the Nation 2020), fraud that occurs relating to the misuse of assets (asset misappropriation) has the highest frequency of occurrence at 86%, followed by corruption by 43%, and financial statements fraud by 10%.

Although financial statement fraud cases have the lowest frequency, the level of losses incurred from these cases is the costliest compared to other fraud cases with an average loss of $ 954,000.

The importance of whistleblowing

To deter this costly fraud, companies need to maintain internal control by conducting separate accounting tasks and regularly invite independent auditors.

However, these efforts are not enough as financial statement fraud is often associated with collusion. Management can collude with the auditor to issue a favorable audit report, or the person responsible for the acquisition can collude with an individual that is responsible for recording transactions. Therefore, companies should implement a whistleblowing system and disseminate the policy to all concerned parties.

Whistleblowing function to prevent and detect fraud

The whistleblowing system requires companies to raise awareness among their stakeholders in recognizing the characteristics and signs of fraud. In addition, stakeholders have a role to play to reduce risk by reporting their findings.

Integrity Indonesia, as a trusted company in the field of compliance has extensive experience in providing whistleblowing services for clients from various business backgrounds. Through the Canary Whistleblowing System, Integrity Indonesia presents a combination of several reporting channels that are centered on the website application thus increasing the accessibility of our clients to the report, while still ensuring the anonymity of the reporter. For more information about the Canary Whistleblowing System, do not hesitate to contact us.

Also Read:

3 Facts about Jiwasraya’s Scandalous Fraud Case

5 Theories Explain Why Frauds Occurred Repetitively

Image by Tumisu from Pixabay

Share this post