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Fraud: Constant vigilance the only defence

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22nd Apr 2013
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“In times like these there is likely to be more fraud than less,” according to Stephen Gilchrist, the chairman of Saunders Law, which specialises in fraud and regulation work.

“It might be trite, but it’s still true,” he told a fraud conference organised by the Institute of Credit Management (ICM) Essex branch in London last week. The lawyer confirmed his observation with figures from the National Fraud Authority showing losses from fraud more than doubled from £30bn in 2011 to £73bn in 2012 - equivalent to £765 per person in the UK.

The basic concepts behind many frauds are quite simple, but technology provides new ways to commit them, said ICM president Stephen Baister, the High Court's chief bankruptcy registrar: “Old frauds appear in new disguises and are perpetuated through different means.”

The event looked at the technological tools available to combat fraud, but the speakers provided constant reminders of the human factors behind the problem. “It’s important to be aware that fraudsters are nice people - it’s all about giving and getting trust,” said Baister.

Gilchrist amplified the point. One of the biggest risks of fraud came from “insiders spotting weaknesses in systems and exploiting them”, he explained. “If they go undetected, fraudulent activity may speed up.”

Top tips to fight staff fraud

1. Do a ‘fraud audit’ to determine which areas of your business are most and least susceptible to internal fraud

2. Know your potential fraudster. According to KPMG the typical inside fraudster is a 36-45 year-old male in a senior finance management position, who has been with the company for more than 10 years

3. Review and improve procurement processes annually

4. Manage suppliers. A small shortlist of trusted suppliers reduces the risk of rogue payments  or accounts

5. Consider paperless office tools - electronic documents are harder to lose or tamper with

6. Automate expenses management

7. Use alerts to flag up suspicious activities

8. Carryout regular fraud reviews

Source: Advanced Business Solutions

Accounts departments are where a lot of this activity takes place, explained Home Office official John White, citing the example of a hire company branch that ran a duplicate set of books to record cash transactions, and a head accountant who issued a cheque each month to a “professional services” firm created with a fake name.

Weak internal controls, lack of policy and procedures and poor phyiscial and IT security all play a part in facilitating fraud. Combating it is down to basic things like having good procedures in place to check potential customers, division of duties, and access controls, along with staff who are properly trained and managed.

Thanks to computerisation, however, the amounts of data generated by business systems, from sales and marketing, order processing, operatitonal activities, delivering and servicing are making it harder to identify the tell-tale signs of fraud in company data. Anti-fraud specialists and companies that supply software in this area emphasised that the best way to cope with such large volumes of data is to report on exceptions, so you pick non-compliant transactions out as they are going through the system.

David Sargent, a former PwC receivables specialist who now runs a consultancy called IHBSS, commented: “It’s only when people are backed up against the wall that they may go outside of their normal behaviour, and perhaps look to find funds in new ways. As soon as something looks a bit different, it’s worth being aware of.”

Mainstream business software can take care of all the standard activities, but Sargent encouraged the audience to consider dedicated applications to fight fraud.

“As a receivables specialist, I’m a great believer in improving systems - because you can get more out of the business,” he said. “And don’t rely on your auditors to spot your problems. That’s not what their prime objective is.”

Tools from the likes of Advanced, Readsoft and Ramiliar to help companies compile exception reports that record and track out-of-norm transactions. With Advanced’s Forensix tool, organisations can create their own alerts so that when transactions are raised on certain accounts, exceed specified limits, or perhaps a sensitive activity such as changing a supplier’s bank account details take place, an email or text will be sent to the relevant manager.

Intuitive Business Intelligence director Roger went a step further, and said in his experience, most organisations only installed such software after they had been hit by painful frauds. “They’re after the horse has bolted systems,” he said.

“Business intelligence and fraud detection systems have been around for ages, but are not being used,” he added. His company supports a more pro-active approach by pulling the key indicators and potential system alerts into an interactive on-screen dashboard.

“One of the reasons fraud happens is because nobody notices it at the top level. With KPI and risk indicator dashboards, you can scan them, isolate the problem, determine the root cause and fix it.”

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