Companies in regulated industries — especially those like banks or financial institutions — are required to adhere to many fraud prevention laws and anti-money laundering compliance rules to be allowed to operate. Setting up these systems from scratch or updating them as regulations change is difficult, and requires an immense amount of responsibility and diligence from company leaders.
This is where compliance governance comes in, as it is critical to ensuring your fraud prevention process is properly managed by all stakeholders, and that all company leaders are bought into the fraud prevention process.
What is Compliance Governance?
Compliance governance is the leadership system in place within an organization that is responsible for the decision-making when it comes to managing risk, complying with laws and regulations, and establishing internal policies that follow these regulations.
This typically includes individuals like the board of directors, high-level management, Compliance Officers, C-level executives, and any other applicable company leaders affected by compliance (like a Head of Product).
These individuals are collectively responsible for ensuring there are checks and balances within the organization, that leadership takes the responsibility to implement these policies and then continues to manage and enforce them over time.
Governance vs Compliance: What’s the Difference?
Compliance, often also referred to as regulatory compliance, is the adherence to sets of laws and regulations in place within specific industries that ensure all organizations within those industries are following the same standards.
Governance is a component of compliance, where certain individuals take accountability and are responsible for ensuring compliance is being followed within a single organization or institution.
Both compliance and governance are part of a larger three-pronged best practice approach to fraud prevention, often referred to as GRC, or Governance, Risk Management, and Compliance. Risk management relates to the approach taken to building a fraud prevention process that addresses all potential risks so it can identify any potential areas where fraud may occur.
All three areas must be addressed within an organization to ensure proper compliance exists, and that your fraud prevention system is as effective as possible.
Corporate Governance and Compliance: A Framework
Institutions that exist in highly regulated industries must build a framework within their organization to ensure that compliance is being followed, and this starts with establishing proper governance at the top of the company.
When building your fraud risk management system, these are the steps you must take related to governance, which is the first stage of the overall process:
1. Determine the Risks and the Processes for Managing Them
This first step involves looking through the product or platform and determining where all the potential risks are. You need to have a general idea of what the threats are and where they may come from — both internally and externally — to be able to address how your system will deal with them, and how leaders can be responsible for preventing them.
Once you’ve built a list of these risks and how they pose a threat within your product, you can begin to build the overall process for dealing with these risks.
2. Determine Who Will Oversee Anti-fraud Operations in the Company
List out all participants in the fraud prevention system and detail what their roles will be, as well as what they are responsible for. Who is responsible for each stage in the process, and what events trigger those responsibilities?
Make sure when delegating responsibilities that all stakeholders are taking a more active role in fraud prevention at the company. The “we didn’t know” excuse doesn’t fly with compliance anymore. It’s not just about what you did, it’s also about what you should have been doing, and a lack of knowledge about what was going on at the company does not mean you weren’t complicit if you are a stakeholder.
3. Determine Which Values Will Guide the Company’s Anti-fraud Process
With all stakeholders and governance leaders present, discuss the ethics the company will abide by and what the expectations are for each leader. How will the company handle conflicts of interest? How will they handle post-employment? What steps will the company take to prevent fraud from occurring in the first place? What kind of standard are you holding each governance leader to?
You should also map out a plan for how the company will handle investigating internal fraud, and how you will hold each stakeholder accountable if any anti-fraud practices are broken.
4. Make Sure Initiatives Are Interconnected and Coordinated Across Roles
Once you have a clear idea of the company’s risks, how you will deal with them, and who is responsible for them, you’ll have the clear beginnings of your process. At this stage, you want to ensure that initiatives are interconnected and coordinated across governance roles.
These systems don’t work effectively when certain departments are making choices related to compliance or risk management, and not communicating with each other. It also makes long-term enforcement of internal policies nearly impossible if some governing members have different expectations for their own team members.
5. Document Everything and Steadfastly Enforce It
Once this system is clearly mapped out and all governance leaders are in agreement, the system should be clearly documented, reviewed by all stakeholders, and confirmed by each person that they understand their roles and responsibilities within it.
This system should be agreed to, clearly understood, reiterated, and constantly redistributed as a reminder, and harshly enforced among all governance leaders. This is not a one-time task, but a constantly evolving process that governance leaders must take keen responsibility for managing over time.
Help Build a Better Fraud Risk Management System with Unit21
If building a proper fraud prevention system with all components of governance, compliance, and risk management is a priority, schedule a demo today to learn how Unit21’s all-in-one fraud prevention system can help automate your system and make it more efficient.