When fraud hits, the consequences can be devastating. And that’s why for any organization – be it government or commercial enterprise – preventing is better than cure. Fraud comes in different sheds and companies need to arm themselves with tools and skills of guarding their operations from these fraudsters. Here are ideas from PricewaterhouseCoopers (PwC).
Don’t get blindsided by your blind spots: If you don’t know it’s there, you don’t look for it. If you don’t look for it, you don’t ﬁnd it. If you don’t ﬁnd it, you can’t make the business case to look for it.
In this survey, 87% of our respondents reported having insight into fraud and/or economic crime incidence in their organisation. Given that success in the prevention, detection and management of economic crime in an entity primarily depends on the ability of key parties in that organisation to recognise the nature and type of economic crime, these results are encouraging.
However, 13% of the respondents reported having either limited or no insight at all into the prevalence of economic crimes in their organisation. This means that the organisations are not in a position to institute preventive controls or regulations. Boards and senior management of organisations must stay accountable and informed on what is going on in their organisations.
Detection of economic crimes – your arsenal: The survey reveals that in order to detect and manage fraud dynamically, all the facets of fraud detection mechanisms must be carefully examined. Not only is it necessary to have the right technology and internal controls in place, organisations must invest in people and create an organisation culture where integrity, transparency, vigilance and accountability is encouraged and upheld consistently by all stakeholders.
Against a global average of 51%, 52% of Kenyan respondents cited corporate controls as the means by which their most disruptive economic crimes was detected. Routine internal audits, fraud risk management exercises and suspicious activity monitoring were cited as the top three corporate control tools employed by the respondents and which were able to detect the perpetration of economic crimes.
Other corporate controls cited by the respondents as the means through which economic crimes at their organisations were detected included data analytics, personnel rotation and having in place a robust security system, both physical and Information Technology.
Moving forward, organisations will need to leverage on and harness data generated in the course of normal business operations to detect and ﬁght fraud. An organisation can gather useful insights on transaction anomalies, patterns and relationships that may be indicative of irregular or fraudulent activities.
Invest in people, not just machines: An open corporate culture is a key means through which most disruptive fraud activities were initially detected. Respondents indicated that having internal/ external tip offs as wells as whistleblowing hotlines helped in the initial detection of suspicious activities.
This goes to show that cultivating a corporate culture where internal parties are well trained to identify fraud and feel safe to report fraudulent activities is paramount to the ﬁght against economic crime. A whistle-blower policy that not only encourages the reporting of suspicious activities but also protects the identities and welfare of the whistle-blowers also goes a long way to earn the conﬁdence of potential whistle-blowers.
Beyond the inﬂuences of management: 11% of respondents indicated that their most disruptive economic crimes were detected beyond the inﬂuences of management, either by accident, by law enforcement or as part of investigative media journalism.
The stream of information being released to the public with respect to the fraud is likely to be uncontrolled, misleading or distorted which provides an opportunity for competitors and other ill-intentioned adversaries to take advantage of the fraud to cause further disrepute to the organisation. Sufficient systems should be in place to detect any fraudulent activity before it is in the public domain.
Find the right technology to ﬁght fraud – finding the sweet spot: With new emerging technologies most of which can be exploited to perpetrate crime, organisations need to be vigilant and conduct an in-depth assessment of the right technology to serve its requirements.
The use of artiﬁcial intelligence tools such as speech recognition and machine learning software will also help to arrest economic crimes. That way, machines are able to ﬂag behavior that is indicative of an anomaly and forward the ﬂagged transactions to the relevant authorities for further checking and validation.
Controls and culture – the fraud triangle: According to the theory of the Fraud Triangle, the birth of a fraudulent act usually takes the following trajectory; it starts with pressure which is generally related to an internal issue in the organisation or a personal matter the individual is grappling with. Then, if an opportunity presents itself, the person will usually wrestle with it psychologically. The last piece of the puzzle which enables them to move from thought to action is rationalisation. Since all three drivers must be present for an act of fraud to occur, all three must be addressed individually, in ways that are both appropriate and effective.