Preventing Fraud - a boards responsibility

4 min read
Jan 10, 2023 8:54:07 AM

A Board has a duty of care regarding its employees and the future, material and collective goals of its business. Leaders should be sure to effect decisions in line with the company's pursuits with the right amount of care and knowledge. Along with duty of obedience and loyalty, duty of care is the third part of a Board's primary fiduciary duties.

Practising a strict duty of care within a Board helps companies perform better in the present and lets them avoid legal and liability concerns in the future. Boards that are sure to follow legal practices in all of their business proceedings will avoid future headaches and decrease the overall risk to their organisation.

Company directors are at the forefront of a Board's duty of care, holding responsibility for its implementation. They should be aware of all ethical and legal standards that their industry and milieu require of directors and aid their fellow professionals in making sound decisions that demonstrate their integrity. Overall, they should be focused on growing their company in a legal, irreproachable way.

With duty of care, directors are legally obligated to fulfil their responsibility to their Board, but their commitment should stem from more than legal obeisance, encompassing a desire for company betterment and a keen, insightful eye into current industry politics. Moreover, directors should care enough to be aware of their own conduct and open to feedback concerning their work. When it comes down to it, directors are financially, ethically and legally responsible for their company at all times under the duty of care – because of this, they should truly give to their organisation.

One key area of insight and awareness in our modern era is the growing industry of cybercrime. Although there has been a subsequent boom in the availability of resources and awareness of the importance of cybersecurity measures, crime rates are soaring internationally on the world wide web. 

samSam MacGeorge, CEO of Vigilance Ltd, which works to alert users to questionable transactions before they occur, warns that “Professional crime is global now, we're all part of a village, digitally, and of course there are multiple events. So you've got multiple actors constantly having a go at organisations. There's a shift from just individuals moving into business, because businesses have much bigger amounts of money to defraud them.” 

Because businesses are such popular targets these days, it's more important than ever that directors be wary and exercise their duty of care by researching the latest security features for their company. These many include Board software options that include data storage protection at physical storage centres as well as online through encryption, helping keep confidential Board documents safe from prying eyes. They can also involve increasing security workplace measures and encouraging Board members to conduct themselves with confidentiality – this includes the obvious of not sharing passwords and Board information but comprehends even practices such as not using personal emails for work nor sharing PDF files outside of secure clouds.

"Internal fraudsters are intimate with the weaknesses of the businesses already," continues MacGeorge. "Once fraud takes place and is discovered, which are two different things, the cultural damage to an organisation, the drain on a business; the dealing with the circumstance is way more personal.

A director practising good duty of care will have already run the scenarios for this type of situation and, having taken every necessary and reasonable precaution, be well-equipped to defend both their own reputation and that of the company. Directors must be informed, vigilant, present, prepared and meticulous, not to mention open to calling for help when they need it, in order to combat the growing rates of crime and fraud in the industry.

To implement duty of care, directors should work on conducting themselves with discretion when making big decisions. They should be aware of the future risks for their company, not in the least as they pertain to chances for fraud to occur, and plan accordingly to mitigate such risks. Sensibly managing their company's assets and making all decisions from an informed, rational point of view will allow them to state with veracity that they acted in good faith if something does go amiss.

david GIf an instance of fraud or crime does occur in the company that you are directing, David Greenslade, managing director of Strategi Ltd & Strategi Institute Ltd, says that as directors, “You've got to step back and recognise that, yes there is fraud here, but how far does that go? Is it only in the area that we've identified or is it permeating in different formats throughout the business? What we may have, is the beginning [of] or actually embedded culture of taking advantage of things.”

It is vital that directors grasp the full extent of the situation they find their company in, as this will allow them to properly deal with the consequences in line with the obligations of their duty of care. They should follow all legal requirements and be sure to cover the full scope of the situation, acting effectively to resolve the consequences of said fraud and move the company forward whilst at the same time learning from their mistakes for future occurrences.



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