Stopping fraudsters in their tracks

With staff fraud on the increase Simon Fowler gives some advice on prevention.

UK businesses have never been more susceptible to insider fraud as highlighted by the latest CIFAS Staff Fraud Database. This has revealed a 43% overall increase in the number of staff frauds recorded in 2012 when compared with the previous year.

To help businesses detect and prevent insider fraud businesses should act on the following top ten tips.

1. Assess the risks in your organisation – Do a fraud audit to determine which areas of your business are most and least susceptible to internal fraud. This audit could cover history of internal fraud in the organisation, the fraud detection and prevention processes in place, which technologies are in use and their level of effectiveness for managing risk.

2. Know your potential fraudster – Research by KPMG has identified that the typical inside fraudster is a 36 to 45 year old male in a senior management position who works in the finance function (or in a finance-related role) and who has been with the company for more than ten years. Obviously, staff who fit this profile should not be put under surveillance, however understanding the profile of a typical fraudster may encourage a re-think of the organisation’s processes and the level of control/power certain individuals possess.

3. Introduce a zero tolerance culture – Place the topic of fraud high on the company’s agenda, make it an openly discussed topic and ensure staff are aware that the company has a zero tolerance attitude to fraudulent behaviour.

4. Review and improve procurement processes – How easy would it be for a member of staff to create a bogus supplier and to raise invoices against them? Would a supplier’s new bank account details be investigated? Procurement process reviews need to take place on an annual basis to safeguard against the risk of fraud.

5. Implement technologies that provide fraud alerts – To help identify and prevent fraudulent activities, organisations need to be supported by effective technologies that can alert management to any unusual behaviour. For instance, Advanced’s Forensix solution is used by finance teams to detect a range of potentially fraudulent activities such as write-offs, discounts and employees making unusual financial arrangements with external suppliers. Any suspicious activities are then automatically flagged for the attention of management.

6. Manage suppliers carefully – Having fewer suppliers can reduce the likelihood of insider fraud and so aim for a trusted shortlist of suppliers. Start by looking at inactive or ad hoc suppliers and then review supplier arrangements before implementing a strategy to deal with how the organisation’s suppliers are approved and then subsequently managed.

7. Consider electronic document management – Documents should be stored electronically using reputable document management solutions to eliminate the risk of paper documents being tampered with, ‘lost’ or shredded to suit a perpetrator’s end needs. When documents are stored electronically, an audit trail of who has opened each document, when they opened it and what they have done with the document is also recorded, providing a further layer of security.

8. Automate expenses management – How easy would it be for a member of staff to make a false expenses claim? Implementing a software system that automates the approval and management of expenses is key for fraud prevention. This system needs to include safeguards to ensure staff can’t make large or unusual claims without checks being made. It also needs to ensure that the company’s expenses policy is being adhered to.

9. Integrate your IT systems – A fraudster will take advantage of loopholes in your systems and processes. Organisations that run a number of standalone systems that operate in isolation of one another will be at greater risk of fraud compared with an organisation that operates an integrated IT platform where one version of the truth is provided.

10. Carryout regular fraud reviews – It is important to continue to review the organisation’s fraud prevention measures and technologies. Book in annual fraud reviews and consider carrying out role play scenarios to see how easy it would be for a member of staff to carryout fraudulent activities.

Many organisations are failing to address the real issue of insider fraud and so it remains the elephant in the room. This is despite the number of insider fraud cases increasing considerably in 2012. It’s therefore vital for organisations to put measures and technologies in place to safeguard themselves, sooner rather than later.