The Fraud Examiner

“Why Didn’t We Know About This?” How Supervisory Boards Can Get a Grip on Pressure Related Fraud

LLM Anja van Eck ECIM  
Vrije Universiteit Amsterdamr

Supervisory board members are expected to see the icebergs coming, but they operate at a distance from the shop floor and barely feel the pulse of the organization — and they often have only a limited dashboard of key performance indicators (KPIs) available to them to ask the right questions. How can board members prevent calamity before it is too late or very costly to fix?

Risk management has evolved over the years, along with the role of the supervisory board, which can create an environment where potential problems don’t surface because people don’t speak up. At the same time, legal and ethical conduct is increasingly important for a variety of reasons. Expensive penalties for corruption and fraud have been levied in cases in the U.S. and the U.K. There has also been a growing awareness of what is ethical conduct and what isn’t, combined with new codes and regulations, and personal liability of company directors. Digital transformation has been a catalyst for these developments, in part because it has boosted possibilities for fraud while also creating transparency. Larger organizations have instituted compliance departments, next to their legal, audit and risk management departments, and regulators are now busier than ever.

The question is whether the new codes, regulations and compliance teams will be able to effectively curb noncompliant behavior. Henk Broeders, chairman of the Dutch branch of the International Chamber of Commerce, believes that we will reach a point of “no corruption” in the future. Others think that the proliferation of regulations will actually induce misconduct because offenders will find ever more creative ways to bend the rules, and tracing these new swindles will only become more difficult. Sylvie Bleker, professor of compliance and integrity management at the Vrije Universiteit school of business and economics, said in her inaugural speech that complying to the rules is essential to avoid chaos, but compliance is behavior.

Due to this growing awareness, integrity management is presently high on the agenda of many executive and nonexecutive boards. Despite the importance of integrity, it still seems that few problems a company faces ever reach the board. Employees often don’t speak their minds to their superiors or their voices never reach the very top. This prompts research in an entirely new field: that of “the unsaid.”

What happens if employees do not speak up or do not dare to speak up? What kind of problems does a board face when this happens, and how can they best deal with it? Is there an enhanced risk of fraud?

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