Fraud is one of the most underreported crimes. Despite an estimated 3.6 million cases of fraud last year, only 276,129 (just 8%) were reported. Whether it’s down to embarrassment or fear, it’s clear that people aren’t asking for support or guidance when they need it.
The implications for businesses shouldn’t be underestimated. Lots of companies are reluctant to reveal instances of fraud for fear it could damage relationships with customers and clients. But with organisations losing up to 7% of their annual turnover as a result of fraud, can businesses afford to mute the issues?
In reality, getting external support could be one of the best ways to strengthen your fraud prevention.
Fraud is committed because people have found vulnerabilities in your processes to take advantage of. They could be your colleagues or external hackers.
You may have worked hard on your internal fraud prevention systems, but how do you know if they’re working? Take the case where a charity employee managed to steal over £45,000 in funds. As they had set up false accounts, the weekly checks showed that the charity was only paying trusted partners. The scam only came to light when they admitted to their crimes.
It can seem impossible to detect this kind of manipulative behaviour within your company. An expert, however, can offer an outsider’s perspective to spot weaknesses. It’s called a risk assessment, and it’s much easier for an external professional to do – because they have the knowledge and experience to recognise red flags.
We’ve just talked about the threat of internal fraud, but that doesn’t mean that all your staff are against you. In fact, your team can be the first people to notice when something isn’t right, as we explored in our article on preventing corporate fraud within your business.
To give an example, the Banking Protocol is a relatively new scheme that allows in-branch bank employees to call the police if they believe the bank is being scammed. Since it was introduced, over 3,682 emergency calls have been made, preventing an average loss of £6,720 per call.
Here, the bank staff knew exactly what to look out for and how to act on it. Getting external support for training is crucial. It helps to create focus and give the exercise weight, so employees understand the important role they play in fraud prevention. From one-day courses to e-learning courses, there are lots of ways you can teach employees about the red flags of fraud.
Training is most effective when it is relevant to every member of staff. It’s therefore wise to make the learning tailored to various teams, so they can see real life examples of fraud within their day-to-day roles.
With so few cases reported, it’s reasonable to believe that some people simply don’t know what to do if they suspect fraud.
Just this year, a former national managing partner for audit quality at KPMG LLP and an employee of the US audit regulator were found guilty of multiple counts of fraud. When people in positions of authority are abusing their power, it can be difficult for other employees to raise the alarm. Understandably, they may fear for their own jobs and reputation if they speak out against someone at work. Closer to home, following the fallout from the Patisserie Valerie scandal, auditors Grant Thornton are reviewing their internal processes, having previously stated 'we are not set up to look for fraud'.
The cases of famous whistle-blowers throughout history, such as Edward Snowden, have demonstrated the consequences of revealing confidential information. Even if the employee acts to expose illegal or immoral conduct, speaking out can be risky and can lead to the loss of their job, home and even their citizenship in the most extreme cases, such as Snowden’s.
An external organisation can really help in these instances. You could give employees a whistle-blowing hotline, so they can confidently report any suspicious activity while staying anonymous.
The examples we’ve mentioned above are all related to internal fraud, so how can systems help you detect fraud from outside? Your due diligence checks are essential, here.
By conducting thorough checks, you can identify suspicious suppliers and avoid working with them. But this is time consuming and problematic – there is simply so much information to find and then sift through. It’s easy to see where human error could cause even the most eagle-eyed to miss something.
Using an external onboarding system can make a significant difference to how effectively these processes are managed. Graydon Onboarding, for example, offers an electronic system that combines credit, fraud and compliance processes. It’s designed to pull together multiple data sources to give you thorough insights about each company, quickly, all at once.
As people become more aware of fraud tactics, criminals search for new ways to infiltrate businesses and personal data. A fraud prevention process might be watertight one year but have holes the next.
It’s worthwhile thinking ahead to have a risk assessment carried out regularly. There may be new threats for which you need a process in place to avert.
You could also attend events, such as our upcoming fraud prevention network. Held quarterly, these bring you up to date with the latest developments in fraud and what you need to be aware of. Listening to other businesses’ experiences and learning about new threats can help you reassess your firm’s systems. You may also discover new tactics for stopping fraud.
As we’ve discussed, there are lots of ways external systems can tighten your fraud prevention processes. We’ve also touched on the importance of your employees in your procedures, and we’ll expand on how to train your team in the next, and final article in this series.