ACFE Nations Report 2022 - Internal control and its role in Compliance

October 7, 2022
Aladar Molnar

Even in a sad and embarrassing scenario like the Covid-19 pandemic, one of the most serious episodes in world history, with millions of lives lost and so much economic and material damage, it can make some people aware of the importance of changing behavior and adopting more ethical and honest postures. This is what the 12th Edition/2022 of the “Report of Nations – Global Study” by ACFE (Association of Certified Fraud Examiners / Association of Certified Fraud Examiners – 2022 ACFE Report to the Nations), based in Austin, Texas (USA).

The study reports 1,200 occurrences of irregularities committed by professionals and managers, in 23 sectors of activity, in a universe of 133 countries, from January 2020 to September 2021. The total loss was US$ 3.6 billion. Affected organizations are estimated to lose 5% of their annual revenue because of the issue. About 69% of the reported frauds occurred in companies, being 44% private and 25% public.

Something positive that can be inferred from the survey is that, in the contingent of 3.3 billion people working around the world, the vast majority have never stolen, committed fraud or abused the trust of their employers. However, the small transgressive percentage, responsible for millions of irregularities, causes immense damage to companies, the economy and society, as a financial failure can have grave consequences, including reduced investments and unemployment.

Two suggested control measures stand out in the ACFE study: job rotation/mandatory vacation policies and surprise audits. Such measures were associated with a reduction of at least 50% in the median loss and in the average duration of frauds. Other initiatives that have proven effective are proactive data monitoring/analysis and formal risk assessments.

The internal control function within a company is responsible for keeping operational effectiveness, generating reliable performance reports, and ensuring compliance. Often, however, internal controls have poor access to consistent data that allows them to perform these functions. Furthermore, the disparity and lack of integration between a company's systems further worsens the problem, along with a lack of technology or in-house skills.

The suspicion and/or practice of illegal acts and frauds perpetrated by directors and/or employees require immediate action by the board of directors, which may form an investigation committee, formed by specialized and independent professionals.

A significant role in this process can be played by the independent auditor. The independent auditor must be present in the investigation from the beginning, to express their views and needs. The professional monitors the development of the work, discusses the information collected with the investigators and meets with the board of directors and/or audit committee to see their conclusions.

When facing these challenges, leadership needs to set up common practices across the organization. And these practices must be supported by an integrated internal controls framework, comprehensive risk management and advanced analysis.

The figures in the world report show that preventive measures, controls, verification, and application of the necessary legal actions are indispensable. For these reasons, here at SBL, our skilled professionals are ready to provide our customers with the necessary to keep operational efficiency, generate reliable reports on performance and ensure compliance for your company of any size.

What are the ESG Compliance Services that SBL can offer clients?

• Risk Assessment

• Support to Senior Management

• Compliance / ESG documents, processes, procedures, laws, and policies

• Controls, Investigations and Audits

• Business Communication and reports

• Training, Coaching to the CCO, Support to the Ethics Committee and/or in the Definition of Disciplinary Measures, ESG strategies

• KYC / AML/ Due Diligence

• ESG Assessment and Consulting

• Cybersecurity

• Tax Law and investments

• Criminal Compliance

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