October 17, 2023
Historically, there is a clear connection between economic recessions and whistleblowing, but there are several effective methods that you can use to reduce problems with, for example, fraud during a recession.
What happens to whistleblowing during an economic recession?
The cost of living crisis is real because prices continue to rise, wages stay the same and the economy is declining. It's easy to see why businesses are concerned about an increase in employee fraud and theft.
Looking back at past recessions, it's clear that there are three key things that need to happen for fraud to increase and drive people to commit such illegalities: pressure, chance, and the ability to make excuses for it.
In the first four months of 2021, reported fraud attempts at financial institutions increased by 149%, according to a recent report from TransUnion. This increase is largely attributed to the Covid-19 pandemic that was raging during this time.
There is also evidence that recessions go hand in hand with an increase in fraud attempts. For example, during the 1990 recession, GDP fell by 3% leading to a 9% increase in fraud. During the 2008 recession, GDP fell by 1%, leading to a 7.3% increase in fraud. These are figures and comparisons produced by Professor Mark Button, who is responsible for the Center for Counter Fraud Studies at the University of Portsmouth.
When fraud crimes increase, it's often because more people are stealing, companies are more likely to conduct thorough internal audits during recessions (which lead to them finding out about past or ongoing fraud). It is also due to nervous or anxious employees using the company's whistleblowing systems or processes to notify other employees.
Also read: Motivate whistleblowers to report misconduct
How you can protect your organization against fraud in a recession
Preparation is key to ensuring you have a strong and effective process for people to report wrongdoing. There are key things business and HR leaders can do right now to improve the success of their whistleblower programs and ensure they are ready. To protect the organization against fraud in a recession, companies can focus on:
- Internal audits
- Updates & Improvements
- Effective whistleblower systems
When carrying out an internal audit, companies should, among other things, look at how they handle reports of irregularities. Consider how well your policies, processes, and plans are working. Are they current? Are they effective? Keeping the systems up to date and improving them will help you find places where they are not working as they should and where you need to make changes. Maybe you even need to change some systems? Or does something seem not quite right with the accounting?
This continuous improvement will ensure that the organization meets its legal and social obligations, as well as its policies and procedures.
Updates & Improvements
How will you monitor, measure and evaluate your policies and procedures in the future? Having a good whistleblower policy in place is a good place to start, but it's also good to continually update it to reflect changing conditions, markets, and needs.
By spending time and money to maintain and improve, for example, your whistleblowing system, you can help reduce the risk of errors and demonstrate to society, your markets, regulators, owners, and other interested parties that you have good management practices.
It is important to ensure that your investigators (if you have internal ones) have the right training and tools to quickly and accurately handle a report. Not only to help stop or reduce the loss of assets and to find lost assets, but also to help to protect people who report errors. Confidence in your whistleblower system grows as you reduce and stop poor or inadequate handling of the cases and those involved.
If such competence is lacking internally, it may be a good idea to hire an external one. For example, Visslan offers free external reception functions where you get lawyers who can handle your cases for you completely free of charge.
As an organization, you should work to create a culture of openness, honesty, and responsibility. How this is done varies from company to company and between different industries. You can read more about internal communication and corporate culture in several of our blog posts, for example, 5 ways a good leader can influence corporate culture.
There is no one-size-fits-all answer, but try to focus on your organization's culture to find and keep people who share your values.
Are all your employees trained in how to use your whistleblowing system? Do they know how to report errors, and know that they have the power to do so? Clear communication is important to encourage and make it easier for employees to report errors, especially when it comes to making sure they know they can remain anonymous.
This allows your employees to follow whistleblowing best practices to find wrongdoing and fix it as soon as possible. It also indicates that those responsible, want to stop and end any and all misconduct in the workplace.
Effective whistleblower systems
The key to detecting fraud is often whistleblower systems, where it is seen that organizations with effective whistleblower systems have 50% less losses to fraud than companies without, according to the ACFE Report to the Nations 2022.
Not having received a single whistle through your whistleblowing system can be a sign that several things are wrong: Do you need to replace your whistleblowing system? Do you need to change the way you communicate and encourage whistleblowing internally? Do your employees trust your whistleblower function?
Read more about how you can streamline and optimize your whistleblower system here.
During a recession, more companies expose themselves to professional fraud and other irregularities, and it is not uncommon for them to be committed by their employees. However, it is important not to be suspicious of employees without reason or to believe that they have evil intentions.
Be open and honest with your employees, and dare to review and examine yourselves – are your routines really sufficient? Do you really have an open company culture? If you are not comfortable saying something directly to your boss, can you do it in another way, or maybe even anonymously?
Please don't hesitate to use our tips to start the work of building an organization more resistant to irregularities and other frauds. If you have questions or concerns, you are always welcome to contact us.