Fraud risk management – Recommendations for directors and supervisory bodies

Financial-economic crime, including fraud, corruption and bribary, is a significant social problem that can have a severe and adverse financial impact on citizens, organisations and the government. Financial-economic crime occurs in both small and large organisations. In addition to causing financial damage, Financial-economic crime can prevent you from achieving your business goals and jeopardise the continuity of your organisation as a going concern. In addition, Financial-economic crime damages the integrity of your organisation and may potentially have a detrimental effect on your organisation’s image. The board and the supervisory body are primarily responsible for the prevention and timely detection of Financial-economic crime. The accountant performing the audit is responsible for detecting fraud that is material to the financial information that the accountant audits, such as the annual accounts. Therefore, an open and honest relationship between the board, the supervisory body and the accountant is important. A relationship, in which all matters can be discussed, including sensitive matters such as suspected Financial-economic crime (e.g. fraud, corruption and bribary), non-compliance with laws and regulations, and/or integrity issues. With the joint goals of achieving more effective collaboration in the area of fraud risk management, preventing fraud and detecting it in a timely manner within your organisation and strengthening the chain of accountability.

Tone at the top, culture and behaviour, including the internal code of conduct

The board and the supervisory body act fairly and promote integrity in business operations; in this respect, they set an example for employees and clearly convey the desirability of this behaviour and attitude (‘tone at the top’). The board supports a culture in which reporting abuse and malpractice is encouraged. The board ensures preparation of an internal code of conduct, actively abides by and supports it, and also discusses it with the employees. There is a zero-tolerance policy on deliberate non-compliance with laws, regulations and the code of conduct. The supervisory body oversees the exemplary role of the board and compliance with the internal code of conduct.

Attention for employees and directors

The board promotes an open culture in which attention is given to the performance and achievements of employees and equal treatment, with a remuneration policy in line with market rates. The intention is to promote employee satisfaction. Employee satisfaction is measured periodically in an anonymous survey. The supervisory body receives the results of the anonymous employee satisfaction survey (ESS) from the board and discusses the actions required with the directors.

Fraud disclosure desk and whistleblower policy

The board works to create a safe environment in which employees, customers, suppliers and other stakeholders are encouraged to initiate discussion on and report problems or malpractice to a fraud disclosure desk and has formulated a whistleblower policy, that provides protection for whistleblowers. The board communicates the whistleblower policy to all the relevant parties and ensures adequate follow-up in response to reports. The supervisory body ensures that a fraud disclosure desk and whistleblower policy are in place and oversees their operation. Both the board and the supervisory body react proactively to fraud reports and reports submitted under the whistleblower policies, formalise the lessons learned and take steps to prevent recurrence.

Remuneration policy

The board implements a realistic and suitable remuneration policy, which avoids incentives that lead to undesirable behaviour and also evaluates the remuneration policy when carrying out the fraud risk assessment. The supervisory body oversees the remuneration policy, which is designed to promote integrity and fair business practices.

Sufficient room for speaking truth to power within the board and from the organisation

The board ensures sufficient diversity within the board, management and supervisory body and a balanced split of tasks, responsibilities and decision-making authority, welcomes unsolicited advice and also solicits advice when necessary, and makes sure that there is adequate opportunity for employee participation.

Internal control

The board sets up an adequate system for assessing fraud and corruption risks, and also implements internal control measures to mitigate those risks. The effectiveness of these control measures is evaluated periodically and the fraud risk assessment is reviewed at regular intervals, possibly using the fraud triangle as an analysis tool. The supervisory body monitors the internal control measures aimed at mitigating fraud risks (to prevent and detect fraud and corruption). The board speaks to and informs the accountant each year about the results of the assessment of the fraud risks and the internal control measures that have been implemented.

Anti-corruption measures and agreements with customers and suppliers

As part of the board’s internal code of conduct, the directors develop standards and values for mitigating corruption risks in business relationships with customers, suppliers and intermediaries, including guidelines for accepting and giving gifts, for additional activities, for conflicts of interest, representation and sponsorship activities. This includes the policy and reporting requirement relating to close or long-term relationships between directors and/or employees with customers, suppliers or intermediaries. Perform a screening exercise before setting up a customer or supplier relationship.

Fraud awareness

The board facilitates periodic training to raise fraud awareness among all employees and directors, tailored to the nature, size and complexity of the organisation, and emphasises and communicates the importance of fraud awareness, including the risks of corruption and of cyber fraud. The board and the supervisory body take action to ensure that they are kept informed of incidents involving fraud and corruption within similar organisations and consciously ask themselves: Could this happen in our organisation as well?

Accounting and annual accounts, including estimates in the annual accounts

The board is responsible for preparation of the annual accounts and ensures adequate recording and documented substantiation, and (a process for) authorisation of journal entries in the accounts. This helps prevent and ensures early detection of fraud in the financial reporting system. In addition, adequate record-keeping and an effective administration process contribute to efficient preparation of annual accounts that are free of errors and fraud.

Contact with and cooperation offered to the accountant

The board communicates proactively with the accountant in an open relationship, in which all matters can be discussed, including sensitive matters such as suspected fraud, non-compliance with laws and regulations, and/or integrity issues. The board plays an active role in managing fraud risks. If fraud is suspected, the board reports it to the accountant and the supervisory body at the earliest possible stage and involves them in the subsequent steps. The board facilitates a direct line of communication between the works council, the supervisory body and the accountant. The board and supervisory body take note of the findings reported by the accountant and initiate follow-up action.

Fraud response

The board acts adequately and expeditiously in he event of suspected fraud or non-compliance with laws and regulations and prepares a fraud response plan in advance, to ensure prompt and appropriate action in the event of suspected fraud, non-compliance with laws and regulations and integrity issues. A fraud response plan helps the organisation act appropriately and expeditiously to minimise damage to the organisation, in all its forms.

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