New Zealand businesses enjoy a reputation of being among the least corrupt in the world. This makes it all the more important to make sure that you take all the necessary steps to combat fraud and corruption in your business. Fraud can be extremely damaging for a business, generating significant financial losses and substantial harm to your reputation. Not only would you lose trust with your customers and business partners, but you also run the risk of major legal ramifications. You need to make sure you have adequate internal controls to reduce the risk of fraud and one of these controls is a fraud and corruption policy.

What Are Fraud and Corruption?

The word ‘fraud’ can apply to various kinds of intentional criminal conduct that involves deliberate deception to gain an unlawful or unjustified advantage. Among other behaviours, this could include:

  • claiming fictitious profit and misreporting asset valuations on financial statements;
  • misappropriation of assets through theft, false invoices, or payroll fraud;
  • insider trading; or
  • forgery or alteration of important documents.

Corruption is a type of fraud. It refers to the abuse of power given to an entrusted position for dishonest or unlawful gain, involving a lack of integrity or honesty. Types of corruption include, but are not limited to:

  • bribery;
  • secret commissions (kickbacks);
  • undisclosed conflicts of interest;
  • improperly using knowledge gained in business for personal gain;
  • knowingly providing false or incorrect information for an unlawful advantage;
  • disclosing private or confidential information to third parties without consent; or
  • trying to influence public officials or those in a position of power to look the other way.

There may be ways specific to your business that a person could operate fraudulently, so it is crucial to understand what fraud and corruption could look like in your sector.

Importance of a Fraud and Corruption Policy

It is challenging to deal with fraud if you find it. Therefore, it is always a good idea to take pre-emptive measures in your business. A simple way to do this is by having a complete and definitive fraud and corruption policy. This signals to your employees that you plan to combat fraud seriously and will not tolerate any instances of it. A big part of preventing fraud and corruption in your business is by engendering a culture of transparency and honesty, evidenced by your fraud and corruption policy. 

You can manage risk and formulate a plan if someone discovers fraud at your business. This will ensure that you have a more effective response in the future because you have already planned aspects of that response.

What Goes Into a Fraud and Corruption Policy?

Your fraud and corruption policy should cover your:

  • purpose;
  • scope;
  • people;
  • process; and
  • plan.

Purpose

You should clearly state your intentions in creating this policy so that the members of your business understand why the policy is so important. By showing a commitment to fighting fraud in your organisation, you can engender trust and transparency. Part of the purpose should be to: 

  • provide guidance for those who may suspect or encounter fraud; and 
  • raise awareness about how to recognise signs of it. 

You can also have a table of contents of your policy here, for easier navigation.

Scope

You should define fraud and corruption and clearly outline how it would directly apply to your business. This could include examples of what fraud and corruption could look like at work. 

For instance, if your business deals with public and government officials regularly, specifying what kinds of gifts could be bribery.

People

Your fraud and corruption policy will apply to all staff members at your business, including:

  • directors;
  • managers;
  • suppliers;
  • contractors; and
  • employees, including part-time and fixed term.

So, you need to be comprehensive and outline what their responsibilities are as individuals, in the interests of preventing fraud at your business. This should include: 

  • your employees’ general duties for recognising and preventing fraud; and 
  • what your employees should do if fraud does occur at your business.

Process

Your policy should clearly outline how someone can report fraud or corruption if they find it. This could be a disclosure form or outlining an external authority that they could report it to. People are more likely to report if they feel safe and confident in doing so. Having a set process for your employees to follow can provide some certainty.

Plan

One of the major parts of a fraud and corruption policy includes what you plan to do if someone does discover fraud at your business. You should clearly state that: 

  • you will conduct an investigation regarding any reported matters of fraud or corruption; and 
  • disciplinary action, such as reporting and prosecuting anyone who commits fraud. 

You should also delegate the responsibilities of:

  • internally investigating instances of fraud;
  • dealing with the financial fallout and trying to recuperate losses;
  • preserving evidence and contacting police; and
  • dealing with the media.

Key Takeaways

Having a fraud and corruption policy at your business is a good idea because it clearly indicates that you do not tolerate any kind of dishonest practice. It can also be a good pre-emptive measure, in that it provides a plan as to how employees should respond if they find fraud at your business. Your policy should also undergo regular review. If you would like help with your business’s fraud and corruption policy, contact LegalVision’s New Zealand regulatory and compliance lawyers on 0800 005 570 or fill out the form on this page.

FAQs

What is fraud?

Fraud is a kind of criminal conduct, which includes intentional deception to gain an unfair or unlawful advantage. This can include lying about your profits or the misappropriation of business assets for your personal gain.

What is corruption?

Corruption is a type of fraud. It refers to someone abusing the benefits of their position’s entrusted power for personal gain, including a lack of integrity and honesty. Corruption can be bribing public officials or using confidential knowledge unique to your position to gain an unlawful advantage.

What is a fraud and corruption policy?

A fraud and corruption policy is a kind of policy that businesses can write up that details their commitment to finding and fighting fraud in their workplace. It details how a person can report suspected fraud and a plan for what the business should do if fraud occurs.

Do I need a fraud and corruption policy?

It is a good idea to have a fraud and corruption policy, for two reasons. It shows your employees that your business does not tolerate any kind of fraud or corruption, while also informing everyone at the business of their obligations in relation to stopping fraud.

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