The whistleblowing system in preventing financial statement fraud
The pressure of achieving business targets during the global crisis may drive employees to falsify financial statements. An executive-level employee may make a falsified financial statement to hide the company’s bad financial circumstances due to significant unachieved business targets. Or an employee may see the relaxed control during the crisis as a perfect time to embezzle or corrupt the company’s cash and make falsified financial records to hide the crime.
Why whistleblowing is necessary
The falsification of financial reports creates havoc on businesses. Common measures companies can take to prevent fraud from occurring are segregating accounting duties and regularly inviting independent auditors. This will maintain the company’s internal control.
However, fraud is often linked to collusion. As management may collude with the auditor to issue a favorable audit report, which was what exactly happened to the infamous Enron case. Or the person in charge in an acquisition may collude with an individual who is responsible for recording the transaction. Therefore, having common measures in place is not enough. It is necessary that companies implement a whistleblowing system and promote its policy to all stakeholders (e.g., employees, investors, partners, etc).
How whistleblowing works as a preventive tool
The whistleblowing system requires the company to raise awareness among their stakeholders to recognize the characteristics and red flags of fraud, as well as how important it is for the stakeholders to take part to mitigate the wrongdoings by reporting their findings.
Integrity Indonesia as a company that has more than seventeen years working in the field of compliance has extensive experience in providing whistleblowing services for clients from various business backgrounds. Through the Canary Whistleblowing System, Integrity presents a combination of several reporting channels that are centralized on the website application thereby increasing our client’s accessibility to reports, while still ensuring the anonymity of the reporter. Contact us for further information about Canary Whistleblowing System.