Resilience sector insights - Corporate fraud

Organisations may not have appropriate processes and controls in place which are necessary to mitigate instances of fraud. It is essential that organisations enhance governance structures to fully understand where the risk of fraud may arise and how to best mitigate it. Many understand the basic fraud risks involved, but do not have a comprehensive understanding of the full breadth of risks which can impact them. The most mature organisations are those which have a robust anti-fraud framework in place which has been developed by knowledgeable experts and incorporate automation and data analytics to detect and prevent fraud. These improvements in data capture and analytics can also help in other areas, such as enhancing the customer journey, or identifying opportunities to offer suitable products to their customers.

If properly built, these frameworks allow organisations to identify all areas which are susceptible to fraud and help to appropriately mitigate and prevent such occurrences from happening. This anti-fraud framework needs to be detailed and updated frequently.

Consistent and regular review of the risk assessment and related controls (because of external and internal triggers) allows for a deeper understanding into the effects of external and internal change on the impact of fraud. An appropriate example would be when COVID occurred, and many companies started allowing employees to work from home. This brought a wide breadth of challenges into ensuring the risk of corporate fraud was minimized as much as possible. The key is to keep your anti-fraud framework evolving. Having regular reviews, and adapting to changes which have an impact, allows your mitigation procedures to stay relevant against potential threats.

All of the above is of a greater importance due to the likelihood of the forthcoming failure to prevent offence for fraud, adding yet another regulatory requirement and associated rule to demonstrate the appropriateness of the organisation’s anti-fraud framework.

The impact caused by fraud can have a serious knock-on effect. The type of organisation, and the type of fraud, directly influence the risk and its potential impact.

Some of the risks associated with corporate fraud are:

• Financial loss – This is a risk which applies to nearly all organisations.
• Reputational risk – As stakeholders become aware of the fraud instance, the organization becomes vulnerable to reduced trust with suppliers, third parties, customers, and other key partners.
• Personal liability – Where an individual has responsibility to ensure a business has established necessary mitigations, but those appropriate processes were not in place, they may be subject to personal liability.
• Compliance fatigue – having to deal with low grade checks because of an over the top, post incident approach to anti-fraud or the motivational impact of working at a firm with ineffective fraud controls.
• Regulatory implications – If organisations are found to be non-compliant with the regulatory standards, they may be subject to fines, and even an inability to continue to operate or conduct business.

Every sector will have their own specific set of risks which apply to them. Broadly, there are categories which can apply to most sectors.

Businesses need to consider their culture around fraud. Establishing the correct processes and controls is important, but the implementation of these is difficult if employees are not engaged and aligned with the reason fraud mitigations are important. This is particularly important where clients have offices and operations overseas. Ensuring there is a consistent standard across all places of operations is essential.

Another consideration is around managing dominant personalities in organisational governance. It is crucial that processes and authorisation powers are structured in a way to ensure organisations are not left in the dark. This is particularly important when an organisation manages the movement of large sums of money.

As technology develops, so will the complexity of fraud attacks, as well as the software and tools available to mitigate them. It is essential that businesses keep up to date as technology continues to grow and develop. For example, recently, there have been some amazing results using complex algorithms with quantum computing to improve the accuracy of transaction monitoring/fraud detection.

If you would like to understand more about managing your corporate fraud risk exposures, please contact us for an initial conversation.