Air India Found Wanting – Designing a Robust Fraud Prevention Program

Stelios Haji-Ioannou, founder of budget airline EasyJet once uttered the famous phrase “If you think safety is expensive, try an accident”. This was based upon his dire experience in 1991 when a tanker belonging to his father’s shipping company spilled 50,000 tonnes of oil in an environmental catastrophe that claimed five crew members’ lives. As chief executive, Stelios Haji-Ioannou barely escaped incarceration in Italy for manslaughter.

Likewise, any substantial business or organisation is tempting fate by failing to have a Robust Fraud Prevention Program in place. The risks may not be an oil spill but can be equally costly to the bottom line and damaging to the reputation of the business.

As an example for failing to have an adequate Fraud Prevention Program in place, the state owned airline Air India has recently been in the news for all the wrong reasons. Allegations of rampant theft, fraud and maladministration have been widely circulated. These have included tales of repeated thefts of liquor from flights, diversion of spare parts for illicit sales, kick-backs related to the orders of goods plus pilots being paid for duties not performed.

State owned Air India is now facing the reality of job cuts or cease flying certain routes. The failure by executives and management to inculcate an atmosphere of anti-corruption as well as implement an anti-fraud structure has set the scene for wide scale waste and theft.

Any company, institution or organisation –must create and implement a robust fraud prevention programs that is staffed and overseen by capable fraud examiners.

A fraud prevention program will help to protect a company or organisation by:

  1. Instituting a whistle-blower hotline whereby employees and contractors can make confidential tip-offs regarding fraudulent behaviour;
  2. Setting the principled “tone at the top” so that the whole business or organisation embodies the anti-fraud ethos;
  3. Developing a code of conduct and a confirmation process to structure anticipated behaviour for all personnel and contractors
  4. Creating an environment that ensures audit trails for purchase, orders etc. are in place;
  5. Hiring and promoting appropriate employees via a Pre-Employment Screening program;
  6. Instituting suitable anti-fraud and graft training programs;
  7. Identifying and measuring fraud risks;
  8. Implementing and monitoring internal controls;
  9. Having a strong and independent audit committee;
  10. Contracting independent external auditors;

Stopping fraud before it occurs is the ultimate goal of a successful fraud prevention and awareness program.

Hotlines Run Hot
Honest and responsible employees & contractors will utilise hotlines to report irregularities and suspicions anonymously without fear of retaliation. Anti-fraud surveys by the ACFE have reported that hotlines can cut an organization’s fraud losses by approximately up to one half.

An independent third-party vendor can set up whistle-blower hotlines; receive, screen and log confidential calls before passing along relevant information to investigative entities for their action.

Extra effort should be made to communicate the existence, contact channels and benefits of the hotline to all employees and contractors on a regular basis to report any suspect or improper business practices.

Three fraud mitigation actions
Fraud experts have outlined three main actions to mitigate fraud: create a culture of honesty and high ethics, evaluate anti-fraud processes and controls, and develop an appropriate ongoing oversight process.

Setting the Tone at the Top
A company or organisation’s executive and management team sets the moral and ethical direction for all employees and contractors to follow. Employees need to know that the upper echelons believe and submit to a high level of ethical behaviour. Management must clearly communicate a zero tolerance for fraud and the need to follow the pronouncement with education and awareness campaigns to reinforce policies and procedures.

Develop a Code of Conduct
The keystone of an effective fraud prevention program is a culture with a strong value system founded on integrity. This value system can be reflected in a code of conduct. The code of conduct should be created with the involvement and input of employees so that they can be guided whilst making appropriate decisions during their workday.

A code of conduct should include written standards that are designed to deter dishonest or immoral behaviour, promote honest and ethical conduct by all employees plus advise employees what they can and cannot do. The code of conduct should be provided in both a soft and hard copy to all employees, circulated regularly and translated into appropriate languages for overseas locations.

Confirmation Process
People with low integrity or external pressures may be deterred from committing fraud if they know that there is an oversight and confirmation process which increases the likelihood that they will be caught. After issuing the code of conduct to all employees, each should be required to sign a statement indicating that they have read and understood the code’s requirements and will comply with them. This will have the effect on those who have signed the statement can’t later hide behind the claim of ignorance.
Do you need to know more about our services and how Regents can assist you with preventing internal theft and corrupt activities?

Simply go to our Internal Theft or Corruption Investigation pages for our phone numbers or else send an email to contactus@regentsriskadvisory.com with your contact details and we will respond at once.