Public Company Management

Public company management is on the front lines of the fight against fraud, playing perhaps the largest role in the deterrence and detection of fraud. The Anti-Fraud Collaboration takes a cross-functional view of management’s role with a keen interest in sharing resources that detail how they shape culture and design controls that mitigate risks to an acceptable level.

We understand that it is critical to examine all of the ways that management can help fight fraud. Our resources on skepticism can aid and assist company management as they fulfill their responsibility to maintain accurate books and records. Our examination of skepticism includes a look at how company management can use a skeptical mindset in the implementation of an effective system of internal control.

Of course, company management is also responsible for evaluating and managing the company’s business risks, including the risk of financial reporting fraud, and then implementing and monitoring compliance with appropriate internal controls to mitigate those risks to an acceptable level. In a review of insights from SEC enforcement actions, we have outlined steps company management can take to mitigate fraud risk.

In the case of financial reporting fraud, critical controls start with the ethical tone at the organization’s top. They include a strong code of ethics, fraud awareness training, hotline reporting mechanisms, monitoring tools, and processes to investigate, evaluate, and, where necessary, punish wrongdoing. Our extensive exploration of corporate culture includes many specific recommendations for company management to aid in the establishment and preservation of an ethical culture.

While management plays the foremost role in preventing and detecting fraud, some of our reports have shown they typically are involved when material financial reporting fraud does occur. We identified that in these situations, management is usually found ignoring the company’s code of conduct and overriding internal controls. Consequently, the roles of other parties in the financial reporting supply chain are critical in adequately addressing the risk of financial reporting fraud.