Measuring resistance to fraud and corruption

The fact that corruption constitutes a major obstacle to democracy and the rule of law has been known for some time. Empirical research estimates that an average organisation loses about 5% of its total annual revenue to fraud and abuse committed by its own employees. Thus, fraud and corruption are major risks for all organisations. Recent cases of organisations involved in fraud and corruption show a substantial financial loss, both directly due to the fraud and subsequent investigation expenses and fines as well as indirectly due to reputation damage. No surprise that the fight against fraud and corruption has become a popular and focal topic within Corporate Social Responsibility (CSR) these days and this has been supported by both sides, the corporations and society at large. Anti-corruption has been integrated as 10th principle into the UN Global Compact. Anti-fraud measures are being strengthened in many organisations following major corporate financial fraud scandals mainly in the US and the subsequent Sarbanes-Oxley Act of 2002. As more and more organisations put in place systems to assess and manage risks of fraud and corruption, one question remains: how can we measure the effectiveness of these systems to prevent fraud and corruption, and how can we rate how resistant an organisation actually is? This paper explains how organisations typically integrate and implement guidelines and best practices on how to fight fraud and corruption (e.g. the OECD Business Approaches to Combating Corrupt Practices or Transparency International’s Business Principles for Countering Bribery) throughout their business processes. It also introduces a rating system to measure the resistance of organisations to fraud and corruption and a benchmark against the initiatives mentioned above.