Figures from Crowe’s Financial Cost of Fraud 2018 would suggest that if the global cost of fraud – £3.2 trillion – were a country’s GDP then it would be the fourth largest economy, ahead of Germany and behind Japan.
Many organisations appear to be in denial about the problem. Either that or they’re fully aware but prefer to pretend it’s not happening, most likely for reputational reasons. Another reason could be that if you admit that your company has fallen victim to fraud, other fraudsters might think you’re worth a try. Whatever the motivation, reported fraud is only one fifth of the estimated total.
Fraudsters are continually refining their techniques and targets. As awareness and effective anti-fraud measures become prevalent in one sector, they’ll quickly switch their attention to softer targets.
The criminals can exploit internal weaknesses in organisations, especially those that lack a coordinated anti-fraud policy. Fraud is a board-level issue and cannot be left to individual departments to determine their own policies. That way lies chaos and inconsistency and creates policy gaps through which fraudsters can wriggle.
With the fraudsters on the one hand and the regulators on the other, organisations need to take fraud very seriously indeed. If they find themselves facilitating money-laundering, for example, then they could be hit with massive fines, especially if they cannot show a coherent approach to preventing fraud. This means preparing and enforcing compliance policies, processes and controls wherever appropriate within the organisation. The whole company needs to be aware of the risks presented by the determined fraudster.
Apart from the organisation’s existing knowledge of its customers and suppliers, or even the wider knowledge of an industry forum, external organisations specialise in gathering, monitoring and continually refreshing and refining information about companies and their directors. Such information can be made instantly available to their customers when they themselves are on-boarding a new customer or dealing with a defaulter, for example. Furthermore, some of these information providers offer deeper services, such as automated systems that can run automated on-boarding ‘journeys’ using their own and other information sources. Some go further still and offer a ‘black box’ consultancy whereby ‘big data’ is explored for the sort of correlations and linkages that a human couldn’t possibly discover. The important thing here is to regard such outputs as advisory rather than advocacy.
If you’re good at fraud detection why not share your knowledge? In turn, you too would receive information to protect your business. If this were to become the norm, whole industries could make life exceedingly difficult for the fraudsters. The pooling could be through forums as mentioned earlier or by allowing information providers and processors to share the knowledge electronically.
Between them, fraudsters and the regulators make fraud an issue you cannot ignore. It is a massive ‘industry’ which can cause significant financial harm to the unprepared. It is a board-level issue which demands a coherent approach and clear working practices. Ignoring it or hiding it is not an option. Fraud prevention networks and outside sources of help can greatly improve your own and your community’s defences.
If you would like to learn more, Graydon’s Business Fraud Report goes into much more detail.