Imagine two similar companies that are alleged to have engaged in a significant incident of fraud or corruption.

Company A takes a proactive approach to managing fraud and corruption risks, has world-class — but not infallible, anti-fraud and anti-corruption processes ingrained in its control processes; has a good relationship and strong record with its regulators; has robust plans in place to investigate potential wrongdoing and is capable of implementing crisis communications to help protect the company’s reputation.

Company B takes a reactive approach, is confident in its ability to deal with issues as they arise, and is a follower rather than a leader in implementing risk management and anti-fraud and anti-corruption processes.

As an investor, which company would you believe better protects your investment? As a senior executive, or audit committee member, which entity would you judge to be better able to demonstrate that you have fulfilled your responsibilities?

Of course, there is no guarantee that a better-prepared company will experience a more favourable outcome than one that chooses a reactive approach. However, experience suggests that companies that manage their risks proactively or use predictive technology may be less vulnerable to having their reputations harmed by allegations of wrongdoing, falling behind in the news cycle of reactions, and losing the support of regulators, customers, suppliers, investors, the general public, and even politicians.

Global media and the Internet enable news to travel faster and reach more people than ever before. The international nature of business and growing collaboration among regulators worldwide can expose companies to a greater number of regulatory regimes. These factors may increase both the likelihood and the potential impact of alleged wrongdoing on a company’s reputation and shareholder value. Executives and audit committee members should consider how their company manages its risks of fraud and corruption and whether today’s risk environment merits a more proactive approach.

Download the article above.

Article by Deloitte Risk Advisory