Building trust as a tool to create an anti-fraud environment?

Building trust as a tool to create an anti-fraud environment?

Posted by PHOON Pei Jing, Year 3 undergrad at the School of Economics, Singapore Management University

http://www.huffingtonpost.com/cynthia-hanson/how-can-businesses-build-_b_6537670.html

http://www.businessinsider.in/Corporate-Frauds-In-India-On-The-Rise/articleshow/45899708.cms

http://www.forbes.com/2010/06/10/corporate-fraud-executive-compensation-personal-finance-risk-list-2-10-kaplan.html

http://www.reuters.com/article/2012/07/30/us-financial-sarbox-idUSBRE86Q1BY20120730

Given the rising number of fraud cases around Asia, with India seeing a rise of over 45% in corporate frauds in the last 2 years, one of the more important questions today in the business world has been about how businesses can build trust. After all, trust is key to any businesses’ performance as well as competitiveness, and building trust may even help lay the foundation to a successful anti-fraud business relationship.Public may perceive trust in business to be based on values and behaviour, such as corruption and fraud. However, businesses perceive trust in business to focus on transactional factors like products, delivery and customer service.

Efforts have been made to help create greater awareness as well as to educate people on trust. For example, the “new settlement on trust” that was covered in the Leadership, Trust and Performance Equation Project launched by the World Economic Forum in collaboration with PwC, does exactly this. More details about The Leadership, Trust and Performance Equation can be found here: http://www.weforum.org/projects/leadership-trust-and-performance-equation

In summary though, the objective of Phase II of the Leadership, Trust and Performance Equation Project comprises of:

       Identify the top industry-critical dimensions of trust

       Contrast perceptions of trust from within an industry with those from the outside

       Share examples of concrete actions that can help companies build trust

Building trust between companies would definitely help in creating a more transparent working relationship and in turn create a healthier working environment for both companies to work under. Yet, aside from potential areas of improvement in terms of building trust between companies, there are greater reasons and motivations that have played a significant role behind the increase in fraud cases. This can be explained by the motivations for employees to maximize their compensation, which has seen an increase following the increase in percentage of pay linked to stock prices, highlighting their correlation.

Sarbox is one example of a law that has been successfully implemented in curbing fraud, and making positive changes to the landscape. Yet, this one law is not comprehensive in ensuring all that needs to be done to uncover all fraud cases, and to implement laws to cover every possible corner of potential fraud. For one, the law has limited the types of consulting that accounting firms can do for their audit clients, but have left them free to do lucrative tax work. More has to come from employees themselves, to understand what constitutes fraud so as to avoid them, and to be motivated to conduct good and ethical practices. Perhaps, fostering a trusting environment between companies can lay a stronger foundation to create an anti-fraud environment.

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