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When it comes to survival, corporate fraud seems to be as invincible as the cockroach. Despite increased legislative attention focused on putting a stop to Foreign Corrupt Practices Act violations, kickbacks, and the like, a report released Tuesday suggests that those activities are still very much on the rise. According to the “Quarterly Corporate Fraud Index,” put out by The Network, Inc., and BDO Consulting, employee reports of corporate fraud have nearly doubled since the inception of the index in 2005. There were 6,100 reports of fraud-related incidents in the first quarter of this year, compared to 2,500 reports made during the same period in 2005. The Network—a provider of governance, risk, and compliance services—offers a third-party ethics hotline to more than 1,100 of its 3,400 corporate clients worldwide. Its quarterly reports examine fraud-related incident report activity gathered from almost 15 million employees at all corporate levels. Doug Wells, senior vice president of call center operations at The Network, said that the company considers fraud-related incidents to include anything from auditing irregularities to violations of corporate policy that result in a loss. “These can be less severe from a compensation or financial standpoint—up to fraud that results in a corporation ending with in a $20 million settlement,” said Wells. In the first quarter of 2011, the percentage of reports that were fraud-related were up one tenth of a percent (20.3 percent) compared to the first quarter of last year (20.2 percent). Fraud-related incidents also increased 3.3 percent quarter over quarter—comparing the fourth quarter of 2010 with the first quarter of this year. The percentage has increased in each of the last three quarters, and it hit its highest mark since the second quarter of 2009. “The long story is that fraud-related incidents continue to remain high and essentially have done so going back to mid-to-late 2009,” said Wells. The Network represents about half of the Fortune 500. Last week Wells met with the client advisory council, which is made up of Fortune 100 clients. “The lion’s share of the conversation centered around Dodd-Frank,” said Wells. Clients expressed concern over the bounty provisions of the 2010 legislation that could potentially motivate people to bypass internal reporting procedures, he said. But it’s not just top-earning companies that need to be worried about fraud and internal reporting. And Wells said large and small corporations alike recognize the importance of having an overall ethical culture, from the top down. “Prevent, detect, and analyze,” said Wells. “Have a code of conduct that people understand,” he said. Wells said companies can encourage employees to report fraud internally by making employees feel comfortable talking to their managers or reporting fraud through a hotline. And once fraud has been detected, analyze the activity so that the appropriate corrective action can take place. “Having an entire life cycle of an ethical culture will encourage people to stay internal,” said Wells, “before they say, ‘Hey, I’ve got to go blow the whistle because nobody’s listening to me.’”

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