MANILA, Philippines - Ever wondered how big companies could actually collapse even if they’re giants in their own rights and run by Ivy League-trained chief executives?
That’s simply because no matter how big a company is or be it a conglomerate for that matter, they are all vulnerable to fraud.
Fraud is a major problem that can lead not only to the collapse of a company but to a major systemic crisis in the financial system, an expert tells The Star.
According to Punongbayan & Araullo partner-in-charge of risk management Juan Carlos Robles, fraud is a persistent and prevalent problem for many countries all over the world.
“The risk of fraud is a real threat,” says Robles.
In the Philippines, fraud has caused major losses for many companies that amount to billions of pesos. In extreme cases, some companies have even been forced to shut down and their management faced with legal prosecution,” he says.
There are different types of fraud, he notes.
One is the theft of the assets of the company, which involves laundering or stealing a company’s invaluable cash and non-cash assets.
Another type of fraud is financial statement fraud, which is done by crunching numbers or manipulating a company’s financial statement to make it appear that it is in good standing to its stakeholders and to regulators.
“So that its stock prices will go up,” says Robles. Robles believes that if not addressed properly, a financial fraud can lead to a financial crisis and not just the collapse of one company.
The global financial crisis that started in the United States comes to mind. Giant investment houses collapsed as executives sat on big fat salaries financed by hard-earned pensions of ordinary citizens.
The good news is that there are many ways for organizations to protect themselves from fraud, Robles says.
However, there are ways for organizations to protect themselves from fraud.
Punongbayan & Araullo offers companies its fraud management program that is designed to equip organizations to face the ever-changing challenges that fraud risks present.
Dubbed as Proactive, this anti-fraud facility is a set of procedures that enables someone to freely report fraud, violations of laws, rules and regulations or misconduct to people of authority.
Robles says that based on P&A’s experience, many fraud incidents were unearthed because of anonymous tips received through hotlines.
Most of the tips come from employees and company customers and clients, Robles says.
Thus the ProActive system is in such a way that it allows anonymous calls from anywhere and that these calls are screened by the system so that hoax and personal attacks against companies or individuals in companies are eliminated.
As such, the ProActive system allows subscribing companies to define categories of reports, assign responsible persons and officers for each type of reports and generate a summary of reports.
Furthermore, under the ProActive system, Robles says reporters have the option to whether or not divulge their identity. The reports are being sent to persons every time for transparency and to minimize possibility of non-action. Reporters also have the option to track the status of their report anonymously, under the system.
As such, Robles says that fraud can be avoided with an effective fraud management system in place.
Thus, the ProActive hotline may just be the cornerstone of a company’s fraud management system.