Proactive Governance: A CEO’s Role in Preventing Financial Fraud
We’ve all read the headlines, but what exactly constitutes financial fraud in Vietnam? While total prevention is difficult, understanding protection strategies are key to keeping your business safe.
As a business owner in Vietnam, turning a blind eye to the reality of financial fraud is no different from hearing the tick of a time bomb but choosing not to do anything until it explodes. Unfortunately, the numbers don’t lie. According to a PwC survey conducted in 2018, 52% of companies in Vietnam experienced fraud during the two years prior. Even more alarming is the fact that even though 40% of respondents indicated they hadn’t experienced any fraud, it’s entirely plausible that many of those organizations simply hadn’t detected anything yet. This is why understanding and recognizing the realities of financial fraud serves as the first key step in ensuring your company is prepared if—or, when—it occurs. Leveraging insight from a recent meeting with members of the Business Executive Network, this article aims to provide such a framework.
Examples of Financial Fraud: Cases of All Kinds
Before diving into how your company can prevent financial fraud, it’s worth reviewing a few examples of companies that have been affected. For the sake of anonymity, no names will be mentioned.
Parking Ticket Fraud
One member recounted a situation when an employee in purchasing inflated the value of their parking tickets from 1,500 VND to 2,500 VND. While pocketing 1,000 VND might sound insignificant, when this is repeated twice a day for 365 days, the amount stolen becomes much more consequential.
500 Fake Employees
Another member spoke about a time when he worked as a consultant for a furniture factory. What he found was that while the company believed it had 1,800 employees, a manager had actually created an extra 500 fake employees who were on the payroll. This was in addition to taking 10% off every single employee’s wages as part of the cost of getting a job there!
“The Nicest People Can Be the Biggest Thieves”
Anyone who has experienced any kind of betrayal knows that sometimes it’s the people you least expect that you have to be most wary of. One member spoke of a chief accountant who’d been to his house numerous times who ended up stealing close to USD $100,000.
These are but a few cases of financial fraud in Vietnam. What’s important to note is that such cases are pervasive across all departments, with one member stating that one of the best pieces of advice he ever received was, “If it’s in one place, it’s everywhere.” From small, repeat offenses to larger cases of theft and embezzlement, what makes financial fraud so complex is that it comes in many forms. In the following section, let’s consider a few key insights to ensure you’re better prepared to prevent any of its variants.
Key Insights for Understanding Financial Fraud
Fraud is Widespread and Hidden
The pervasiveness of financial fraud often catches business owners unaware. Even worse, a majority of fraud cases are detected only after a significant amount of money has been stolen.
As one member recounted, in his 10 years doing business in Vietnam, he had dealt with well over 80 cases of fraud. This meant at least one in every single department, whether that be accounting, procurement, HR, logistics, marketing, or sales. Common fraud tactics include invoice manipulation, ghost employees, inventory theft, loyalty point abuse, and inflated payroll.
Cultural and Systemic Vulnerabilities
As stated earlier, sometimes the nicest people can be the biggest thieves. Overreliance on and excessive trust in individual, long-term employees increases the risk of fraud. However, this is not to say you should never trust anyone or always be looking over your shoulder. What’s needed is a healthy amount of wariness.
One member recounted discovering that 600 million VND had been stolen from his business by a female employee. After the ordeal, he found she’d been harassed by loan sharks. Now he understands that sometimes the motivation behind financial fraud can be a result of external pressures placed on the perpetrator. While theft is never the answer, what occasionally happens is that even the most trustworthy people may feel forced into committing fraud.
Legal and Enforcement Limitations
When dealing with a case of financial fraud, evidence is essential in order to receive any form of legal or financial recourse. This means having all business transactions backed up on a Point of Sale (POS) system that records everything and cannot be deleted. Without sufficient evidence, making a case becomes much more difficult. Police often take a hands-off approach to financial fraud, operating under the assumption that if it happened, it’s your fault.
In addition, even when a case can be made, once the economic police are called in, the threat of extended audits can discourage business owners from pursuing the matter further. Ultimately, restitution often occurs through informal correspondence with the perpetrator’s family.
How Can Business Owners in Vietnam Protect Themselves Against Financial Fraud?
Effective Internal Control and Monitoring
As mentioned, a reliable POS system is crucial to ensure business transactions are backed up. This makes it possible to track inconsistencies and recognize suspicious patterns before they get out of hand. After an especially bad case of financial fraud, one member even decided to have his niece sit next to the accountant as a preventative measure. Call it the old Vietnamese way—putting the family in the account.
Whistleblower Programs
Whistleblower programs are another effective tool. Based on one member’s story, a common scenario in financial fraud cases is that while you might not discover the fraud until a chunk of money’s been stolen, oftentimes your employees will have known all along. However, no one wants to talk until the cat’s out of the bag.
Whistleblower programs provide a confidential and often incentivized way to encourage people to speak up. After several cases of fraud, the same member decided to set up a program where the whistleblower receives 15 million VND whenever they provide sufficient evidence about a colleague committing fraud. While he admitted no one has used it yet, he has noticed the shift in company culture as a result. As he put it, he believes it’s a great deterrent, discouraging anyone from trying to steal in the first place.
Supporting At-Risk Staff
As mentioned, external pressures can sometimes lead employees to commit acts of financial fraud. Promoting a culture of openness around the topic of financial stress can help alleviate this risk, as can offering company-backed microloans for employees experiencing difficult times.
Practical Recommendations for CEOs
Preventing financial fraud is something that starts as early as the recruitment process. During this stage, conducting thorough reference checks ensures future employees have no track record of such behavior.
For long-standing employees such as a chief accountant, one member even requires them to take two weeks of unbroken leave every two to three years. If they fight against the idea, it may be a red flag.
Apart from this, creating an employee handbook filled with clear “rules of the game” allows you to clearly outline what is and isn’t tolerated. Punishing those who don’t follow these rules helps build a no-nonsense workplace culture.
All in all, financial fraud in Vietnam is an unfortunately common occurrence, with numerous kinds of cases stemming from a range of different causes. While complete prevention is difficult, it’s important for CEOs to understand their responsibility in ensuring proactive governance and fostering a culture of ethics and integrity. Doing so is an important milestone in the continuous effort to improve day to day business dealings.
Business Executive Network’s event: Proactive Governance: A CEO’s Role in Preventing Financial Fraud
In April, the Business Executive Network hosted an insightful blended in-person and online Members’ Meeting exploring the crucial role of proactive governance in preventing financial fraud in Vietnam. Held on April 24th, the event brought together four distinguished speakers—Mehran Sedighi (Head of Compliance, ASEAN Regions, Siemens), Truong Hanh Linh (Partner, Head of Risk Consulting, KPMG Vietnam and Cambodia), Truong Quynh Hoa (Director, Head of Forensic Services, KPMG Vietnam and Cambodia), and David Archibald (General Director, Al Naboodah Group Vietnam)—to discuss how CEOs and senior leaders can strengthen compliance frameworks, identify early warning signs, and build a culture of accountability within their organizations. As Vietnam’s financial and regulatory environment continues to evolve, the key lessons shared during this seminar remain highly relevant for today’s leaders.
Quotes from speakers:
“A good compliance system consists of three pillars: Prevent, Detect, and Respond.” Mehran Sedighi, Head of Compliance, ASEAN Region Siemens
“Unless you start digging, you don’t know what’s there, but it’s there for sure.” David Archibald, General Manager, Al Naboodah Group Vietnam, the largest distributor of Harley-Davidson and Triumph motorbikes in Vietnam.
“In order for fraud to happen, it needs to have three elements: motivation, opportunity, and attitude. In order to prevent fraud, you need to prevent at least one element.” Truong Hanh Linh, Partner, Head of Risk Consulting, KPMG in Vietnam and Cambodia
“Preventing fraud starts with strong internal controls and a culture of ethics.” Truong Quynh Hoa Director, Head of Forensic Services, KPMG in Vietnam and Cambodia
