Fight corporate corruption with robust accounting systems

Financial losses from corruption are on the rise, according to “Occupational Fraud 2024: A Report to the Nations,” published by the Association of Certified Fraud Examiners (ACFE). Nearly half the cases in the latest version of this report involved corruption. Even more alarming is the finding that the median loss for corruption cases grew by 33%, from $150,000 in 2022 to $200,000 in 2024.

Spotlight on corruption

The ACFE divides fraud schemes into three primary categories: 1) asset misappropriation (theft), 2) financial misstatement, and 3) corruption. Its 2024 report defines corruption as “a scheme in which an employee misuses their influence in a business transaction in a way that violates their duty to the employer in order to gain a direct or indirect benefit.” Examples include:

• Conflicts of interest, such as purchasing and sales schemes,
• Bribery, including invoice kickbacks and bid rigging,
• Illegal gratuities, and
• Economic extortion.

Which industries and departments are at high risk for corruption? The ACFE report found that corruption was the most prevalent scheme across all industry sectors — and in all departments where fraud perpetrators commonly work. 

Anti-corruption measures

Given corruption’s universal threat, consider these four steps to fortify your organization’s defenses:

1. Strengthen internal controls. While physical security measures — such as locks, passwords and video cameras — can thwart asset theft, other control procedures may reduce opportunities for workers to engage in corrupt behaviors. For instance, formal vendor management policies can be particularly effective against kickbacks. Key elements to cover are:

• A formal vetting process to ensure only legitimate vendors are approved,
• Competitive bidding requirements to prevent favoritism and inflated pricing,
• Conflict-of-interest policies that require employees to disclose personal relationships with vendors, and
• Payment controls that match invoices with purchase orders and delivery receipts to confirm the legitimacy of transactions before they’re processed.

Other examples of cost-effective internal controls that can help counter corruption schemes are job segregation and rotation, dual authorizations for large payments, mandatory time-off policies, employee training programs, and written job descriptions and ethics policies.

2. Leverage automated accounting software. Modern accounting software can be a powerful tool against corporate corruption. These systems track financial transactions in real time, providing visibility and control over where money is going — and whether it’s going where it should. Automation reduces human error and minimizes opportunities for manipulation by ensuring consistent data entry, processing and reporting. Many platforms offer built-in alerts for unusual activity, such as duplicate invoices or unauthorized vendor payments.

For example, expense tracking systems can automatically categorize spending patterns and flag anomalies, such as out-of-policy purchases, high-dollar transactions just below approval thresholds or spending spikes in specific departments. AI-driven fraud detection tools go a step further by learning from historical data to identify subtle patterns of suspicious behavior that traditional systems might miss, such as repeated transactions just under approval limits (a red flag for invoice splitting), frequent payments to new or inactive vendors, round-dollar transactions, and transactions outside normal business hours.

Many accounting systems integrate with enterprise resource planning software. This gives managers a holistic view of operations and allows cross-referencing between purchasing, payroll and inventory systems. Integration helps uncover conflicts of interest, fraudulent billing and other corruption schemes that might otherwise go undetected when data is siloed. Additionally, some platforms allow for role-based access controls and automated audit trails, ensuring only authorized personnel can initiate, approve or modify transactions — and that any changes are fully documented.

3. Proactively manage financial data and employee activity. Managers should adopt a hands-on approach to detecting and preventing corrupt business practices. This includes regularly reviewing financial reports generated by your accounting systems for inconsistencies and monitoring high-risk employees with access to company funds and accounting records.

All employees must follow strict approval and documentation procedures to prevent unauthorized transactions. Detailed invoices ensure clarity on the goods and services provided. Business justifications for significant expenses add an extra layer of accountability. Limiting cash transactions in favor of electronic payments maintains transaction records and enhances financial transparency.

4. Audit your financials. External audits provide independent reviews of financial transactions, helping managers identify and address irregularities. You don’t necessarily have to wait until year end for an external audit, however. Consider conducting periodic surprise audits throughout the year as an added measure of protection — or hiring a forensic accounting specialist to investigate suspicious activity.

Let’s assess your risks

When did your organization last update its systems against the mounting risk of corporate corruption? Too often, business owners and managers assume that corruption only happens in foreign countries or large multinational companies. But the recent ACFE report provides a sobering reminder that corruption can affect any company, regardless of size, location or industry.

Contact us to help ensure your organization is protected against these schemes. We can assess vulnerabilities, implement robust controls to strengthen your accounting systems, and investigate anomalies or suspicions of corrupt behavior.

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