Regulation, legislation and culture key to mitigating fraud risks: panellists

REGULATORY frameworks and legislative processes may help businesses mitigate fraud risks, but it is crucial for companies to also develop a culture that embraces fraud-prevention measures, said panellists at a forum on Thursday (Nov 9).

Investors and shareholders should also do their part to ensure that the management and the board of directors focus on this, in the interest of ensuring profits, they added.

One panellist, Setia Law managing director Danny Ong, noted that while technology, laws and processes have evolved so quickly that they can be deployed to detect and prevent fraudulent activity, there is only so much these policies can do.

Therefore, a company culture with a balanced risk-taking approach that embraces fraud-prevention measures such as whistleblowing, is key to ensuring that bad actors in the system are detected.

“But it is not just the company itself that has to have this culture,” said Ong during the virtual “Dilemma for Company Good Governance – Fraud the Challenge?” forum at the annual Corporate Governance Week.

The event is organised by the Securities Investors Association (Singapore) or Sias.

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“It’s the responsibility of ourselves as investors to actually focus on that, and elevate that to the same standing as profit,” he pointed out, adding that it should not be a “consequential consideration” that becomes important when things go wrong.

Fellow panellist Benjamin Thong, managing director and Singapore head of Perun Consultants, highlighted that companies often face a challenge balancing profitability with governance structure, as investors may question companies who appear to be increasing their expenditure on governance.

“That’s always going to be the critical point, because management is held accountable for the profitability of the company,” he said.

Moderated by Institute of Internal Auditors executive director Richard Dyason, the panel also discussed the issue of whistleblowing, highlighting that possible informants may be disinclined to speak up on fraudulent activities due to a lack of protection.

Singapore does not have legislation in place that protects whistleblowers, but Ong believes the Republic could take examples from other jurisdictions or from its own laws on money laundering.

“One who suspects money laundering occurring and files a report is actually protected from having his or her identity disclosed. That can be extended further in relation to fraudulent activities and related behaviours,” he noted.

Thong said that fully anonymous whistleblowing, which several companies here have provided avenues for, could also be difficult to investigate, as there is no proper framework on how such tip-offs should be filed.

“(These tip-offs) may or may not be substantiated with documents… they’re also not call channels where they prompt you to give the level of information needed for an internal review or investigation.

“If possible, there should be some framework as to how information should be provided, so that meaningful investigation reviews can be conducted.”

Ultimately, companies should remain transparent and accountable for their actions, and communicating these across to stakeholders is crucial, said the panellists.

“I think tone at the top is always the gold standard,” said Thong, pointing out that management should show the appropriate level of adherence to governance, so that company stakeholders can be guided in the right direction.

In this vein, companies should ensure that all their governance bodies are widely diversified in terms of background and roles, so that perspectives and contributions are enhanced, added Ong.