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Fraud: A Virus Threatening Global Business

Thinking of going global? Overseas markets present exciting growth opportunities, but the rewards do not come without risk.

Fraud is a growing virus infecting businesses around the globe. What makes it especially insidious is that often it is an inside job. Theft of information and electronic data has overtaken physical theft as the most frequently reported form of fraud. Fear of fraud is dissuading companies from seeking overseas opportunities. Finally, most companies are woefully unprepared for greater regulatory enforcement.

These are all findings in the 2010/2011Kroll Global Fraud Report, commissioned by Kroll, the world’s leading risk advisory company. More than 800 senior executives were polled in the survey, which was carried out by the Economist Intelligence Unit. A staggering 48 percent of respondents said that fear of fraud is discouraging them from operating in other countries.

This year’s study shows that the amount lost by businesses to fraud rose from $1.4 million to $1.7 million per billion dollars of sales in the 12 months since the previous year’s survey — an increase of more than 20%. 

The increased regulatory enforcement includes the U.K.  Bribery Act, along with greater enforcement of the Fraud Corrupt Practices Act  (FCPA). According to the Kroll survey, nearly two-thirds (63%) of businesses with operations in the U.S. or U.K. believe the laws do not apply to them or are unsure. As a result, many are unprepared to deal with the regulatory risks: less than one-half (47%) are confident that they have the controls in place to prevent bribery at all levels of the operation, compared with 42% who say they have assessed the risks and put in place the necessary monitoring and reporting procedures.

If you’re considering doing business across borders, make sure you are familiar with compliance rules and regulations in the country in which you will have a business interest. And be aware of the types of fraud that may be running rampant and could cause you the most harmful exposure.

For example, a 2011 European fraud survey by consultants Ernst & Young found that more than one third of employees at large European companies are prepared to offer cash or lavish gifts and entertainment to win business as the economic downturn prompts firms to cut corners to stay ahead.

The U.K. Bribery Act includes the offense of failure to prevent bribery — which makes businesses with any U.K. interest criminally liable if staff, subsidiaries or “associated persons” offer bribes anywhere in the world.

The recession has hit worldwide. As companies all over the globe struggle with an upsurge in fraud, corruption and personal liability, boards become increasingly concerned about it. The best defense for you and your firm is to be proactive, avoid complacency and do your due diligence regarding fraud and regulatory enforcement before making a move into foreign markets.



New Ruling Exposes Loophole in Whistleblower Provisions

Two Boeing auditors who exposed to the press internal documents suggesting the aerospace and military contractor lacked computer-security safeguards were legally fired, a federal appeals court ruled in early May.

In effect, the Ninth Circuit Court of Appeals ruled that the Whistleblower Provisions of the Sarbanes-Oxley Act do not protect employees who leak information to the news media. The ruling is now the law in nine western states.

Enacted in July 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Whistleblower Provisions protect employees of publicly traded companies from being fired if they report conduct that they reasonably believe constitutes fraud or securities violations. These employees also stand to gain financially; the largest payout yet was the $96 million paid in October 2010 to a former GlaxoSmithKline employee for reporting on her employer.

But apparently the Whistleblower Provisions don’t extent to workers who tip off the media to possible wrongdoings.
In the case of the Boeing auditors, the Court ruled that, "Boeing was within its rights ... to terminate the plaintiffs for violating company policy prohibiting unauthorized disclosures of Boeing information to the media."

So what does this new ruling mean? In a nutshell, it may make hiding company wrongdoing easier. 

The Boeing employees thought they had uncovered deficiencies in the security of Boeing’s financial data and were uncomfortable with the fact that the company wanted them to report that data controls were in place that actually weren’t. They warned their employer that they might be violating the Sarbanes-Oxley Act, and were ignored. Apparently feeling pressured to bury the information, they instead spoke with a Seattle Post-Intelligencer reporter about it. The newspaper published a report about it in July 2007.

A few months later — after their work computers and email accounts were monitored — the two were fired for violating a company policy prohibiting them from releasing information to the media without obtaining approval from the communications department. 

According to the Whistleblower Provisions, employees are protected from discrimination or firing if they deliver the information to a federal regulatory or law enforcement agency, a member or committee of Congress or a work supervisor. The new ruling establishes that members of the media are not included. 

The Boeing auditors argued that giving the information to the Post-Intelligencer was one method of bringing it to the attention of the government. But the Court did not agree.

The media played a major role in revealing accounting scandals like Enron and WorldCom — and the result was that Congress did something about it. 

While the new ruling may frighten potential whistleblowers in the short term, what will it mean in the long term in today’s increasingly tight regulatory environment? Will there be an addendum to the Whistleblower Provisions to protect employees who, when ignored by their bosses, go to the media with potential fraud and securities violations? Stay tuned.


New Ethics Training Courses from Lighthouse Services

The industry is always changing, and in turn you are always adapting. Keep yourself, your staff and your company from playing catch up with advanced eLearning solutions from Lighthouse Services.

Lighthouse offers ethics courses and more than 100 other Web-based courses in conjunction with Syntrio, a recognized leader in providing state-of-the-art eLearning solutions.

Lighthouse course offerings
Unethical behavior can be a detriment to any size company, both in the public eye and to the bottom line. Lighthouse’s award-winning courses on business ethics not only cover ethics awareness, but incorporate your company’s code of conduct and policies in our learning modules thanks to their customizable design. Offered for both managers and general employees, all learning is real-life situation-based, asking students to apply your code to a series of potential ethical dilemmas and determine what steps they should follow. These easy-to-implement courses not only help ward off potentially harmful situations in your workplace, but satisfy Federal Sentencing Guidelines and Federal Acquisition Regulation ethics training requirements.

Course features include:

  • Customizable scenarios to reflect your company's unique situations and Code of Conduct
  • 'Ask a Mentor' feature, allows students to direct questions to a designated subject matter expert
  • Built-in note pad to help students retain pertinent information
  • Award-winning scenario-rich content
  • Quizzes
  • Certificate of completion

Other course offerings include employment law, workplace safety and professional development topics.

Easy online management
In an increasingly digital world and a recovering economy, our eLearning programs offer an ideal solution for your organization’s training needs. Our affordable Web-based Learning Management System not only allows for easy access to courses on your staff’s schedule, but gives administrators access to useful features such as training records, course tracking and program management.

Students simply access the requested course through the website, then follow the tutorial at their own pace. Our set-up also means courses can be instantly updated, ensuring students   are receiving the most timely information available.

Enhance your training program today
Provide your employees a progressive and effective solution to your training needs and offer them Lighthouse Services training courses. To take a tour and view our courses, please visit http://learning.syntrio.com/lighthouseservices and enter the password “student20”. To obtain pricing or for any other questions, contact Andy Bronstein at andy@lighthouse-services.com or call 215-884-6150.


Cyber Bullying in the Workplace

Hardly a day goes by lately without a headline about cyber bullying among teens and college students. These stories, often with tragic outcomes, have brought attention to a growing problem — one that is also finding its way into the workplace. 

Whether it’s one employee hijacking another’s email account to send a company-wide risqué missive, or one posting negative comments about their boss on an online message board,  cyber bullying — also known as cyber-harassment — is becoming ever more prevalent in companies today. It can destroy reputations, careers and lives.

In recessionary times, when jobs are scarce and employees often feel “trapped” in hostile work environments, workplace bullying can increase, leading to higher levels of employee health problems, stress and absenteeism. It can also result in legal liability for the employer.

Thirty-five percent of adult Americans say they have experienced bullying in the workplace firsthand, according to 2010 surveys conducted by Zogby International for the Workplace Bullying Institute.1

With other types of bullying, such as making verbal threats or spreading damaging gossip, it’s often easy to detect the source. It’s harder with cyber bullying. That’s because workplace bullies can use so many different types of technology to harass their victim. They can make threats and accusations through instant and text messages, email or cell phones at any time of the day or night. They can use photo editing software programs to take and alter photos of their victim, add cruel captions and send them to the latter’s friends, family and co-workers. They use anonymity as a weapon.

What to do about it
Companies today must make their employees understand that they are expected to act socially responsibly online. They should also update their HR policy to keep pace with how technology can be used for bullying. Social networking guidance should also be built into the employee orientation process.

Some cyber bullying, such as email “jokes” forwarded from one colleague to another, is passed off as harmless office banter. But if one employee is hurt or offended, it is not harmless. 

Educate employees about the dangers of social networking sites. By posting personal information about themselves and not using strict privacy controls, a co-worker can access that information and use it to harass them. Some companies have chosen to ban the use of such sites in the workplace.

Include a section specific to cyber bullying in your bullying policy, and clearly describe and define all forms of unacceptable behavior. Once you implement a policy, ensure it is well communicated to all employees.  

By taking a proactive approach to cyber bullying, you can create a positive work environment that discourages it from happening in the first place.

1. http://www.workplacebullying.org/research/WBI-NatlSurvey2010.html


Stay Up to Speed on Changing HR Legislation

In March of 2011, Levi Strauss & Co. stated that it would pay about $1 million in overtime back pay to 596 employees after the U.S. Labor Department found the company violated the Fair Labor Standards Act.

Human resources laws are constantly being revised, and enforcement is becoming tighter. If you have a newer, less experienced HR manager or a small or recently reduced staff, you could run the risk of being blindsided by the complex and overlapping demands of new federal, state and local employment laws and regulatory requirements. HR violations are not difficult to correct, but usually involve significant focus and paperwork. Left unnoticed or untended, they may result in employee lawsuits, fines and higher insurance premiums, all of which can negatively impact your company’s reputation and bottom line. 

Here’s what’s happening or on the horizon that could cause a typically compliant company to stumble.   

Revisions to the Fair Labor Standards Act. These revisions tighten job classifications and overtime eligibility, and could require revised job descriptions. Mistakes can be costly. In the case of Levi Strauss & Co., according to the Labor Department, an investigation revealed that the company misclassified several groups of workers as being exempt from overtime when in fact they were not.

Extended family leave and bereavement leave benefits. Check to see if your state has made any changes in these areas. For example, New Jersey laws now extend family leave benefits, offering family leave insurance. New York state laws extend bereavement leave to employees with same-sex partners. It is expected that other states could be following suit.

Possible revisions to the Family Medical Leave Act. Last summer, Secretary of Labor Hilda L. Solis announced new Department of Labor initiatives addressing workplace flexibility. To address issues related to work/life balance, the Labor Department’s Wage and Hour Division is conducting a Family and Medical Leave Act survey in 2011 to provide insight into how families use leave. Surveys such as these are often an indicator of upcoming regulatory change, which may include expanded leave rights and/or new regulations this year.

Increased scrutiny of I-9s.  The Employment Eligibility Verification Form I-9 is used by an employer to verify an employee's identity and eligibility to accept employment in the United States. In 2010, a fine topping $1 million was announced against Abercrombie & Fitch for paperwork violations in the maintenance of the company’s I-9 forms. In mid-February 2011, the Obama Administration began a new series of work site investigations and notified 1,000 companies of upcoming audits
of their I-9s. 

A crackdown on credit checks.  In a down economy, state legislatures are feeling pressure to remove barriers to employment — and they are responding. Although credit checks are regulated by the federal Fair Credit Reporting Act (FCRA), recent developments at the state and federal levels indicate a trend toward increasing restrictions on employer access to and use of both applicants’ and employees’ credit reports. The Equal Employment for All Act, HR 3149, currently in the committee review process, proposes to amend the FCRA to prohibit employers from using credit reports when making decisions about hiring, promotions, transfers and terminations. 

In the coming year, employers can expect stricter compliance rules, more regulatory oversight, more compliance reviews and increased and possibly more aggressive enforcement. Make sure you are prepared. Require your HR staff to stay up-to-speed on changing HR legislation, consider an HR compliance assessment — either performed by an outside consultant, or a self-assessment — and become an avid reader of HR-related headlines.

 

 

 

 

 

 
 
 


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