Fraud is bred in an environment that consists of low morals, lack of controls and accountability, and high pressure; this will result in a high fraud environment where fraud is most likely to occur. “A fish rots from the head down”, this is a common phrase used to define leaders of an organization or state who is the root cause of a mishap, or in Caterpillar’s case, fraud. When fraud occurs, the top management is also responsible for it indirectly; one of the most widely used measures to prevent fraud is by cultivating a culture that encompasses morality, acceptance and assistance. The three factors in creating a low-fraud environment are; hiring honest people and providing fraud awareness training; creating a positive work environment; and providing an employee assistance program (EAP).

Hiring honest people and providing fraud awareness training
Although it is impossible for employers to completely barricade against recruiting fraudulent employees, there are still certain precautions an employer can adopt to detect symptom of potential fraud. For example, in Caterpillar’s case, their first and foremost action to take is to verify potential interviewees’ resumes and certifications.
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Deducing from the statistics above, a large number of people are “stretching the truth” about their work experience and accomplishments. Some other companies have conceived various strategies to counter this, for example; using systems to detect credit debt of their potential employees; comparing fingerprints to identify any criminal records; in extreme cases, hiring of private investigators are also used to find out the background of the potential employee. Needless to say, training of interviewers to conduct skillful and comprehensive interviews are imperative. After recruitment, Caterpillar should also provide employees with a fraud awareness program that educates on the consequences of fraud to both culprit and victim.

Creating a positive work environment
An environment being high-fraud or low-fraud is often related to the company’s work culture. To achieve a positive work environment, three aspects must be fulfilled: 1. Creating expectations about honesty through having a good corporate code of conduct and conveying those expectations throughout the organization 2. Having open-door or easy access policies 3. Having positive personnel and operating procedures
Aspect one talks about setting and channeling expectations from top management to all other employees. The Pygmalion Effect is a phenomenon founded by Professor Sterling Livingston, and his thesis was: “People generally perform according to a leader’s expectations. If expectations are low, actual performance is likely to be ‘substandard’. If, however, expectations are high, performance is usually high as well.” He also discovered that expectations must be actual and real, as humans are able to detect true or false expectations; hence it is important for top management to express genuine expectations to subordinates so as to achieve higher proficiency. In additional, implementation of codes of conduct, such as, Sarbanes-Oxley Act of 2002, SEC-Code of Conduct for all employees, and Hormel Foods Code of Conduct. These are signed and adhered to by all employees, so that certain boundaries and ethics are not jeopardized. To enforce the codes of conduct, it must be noticeable and conveyed frequently.
The second aspect elaborates on having an open-door policy; this allows an employee who has encountered an obstacle or issue to communicate to other employees, so that they do not lose their attitude in dealing with the problem. This is also beneficial to managers, as they are able to determine employees’ character and mindset, which can help prevent fraud.
Lastly, the third aspect is having positive personnel and operating policies, which will lead to a low fraud environment. Caterpillar should take notes on the certain attributes that might lead to a high-fraud environment which includes; inadequate pay; lack of job recognition; and ambiguous job responsibilities, just to name a few.

Employee Assistance Programs (EAPs)
In the fraud triangle, perceived pressure refers to financial related problems that are viewed as unsolvable by the perpetrator, which results in them committing fraud. EAPs are like a support system that helps employees deal with various kinds of issues that range from drugs to gambling, health to wealth and even personal problems. It not only benefits the employees, it also benefits the company as the employees are able to contribute more efficiently in their work.

References:
http://www.gradschoolhub.com/resume/