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Fraud growing globally, biggest source gets little attention as it’s embarrassing

Fraud is ubiquitous in all types of business, all walks of life, and all regions/countries world-wide. Fraud prevention varies by type of fraud. There is no single solution.

Occupational fraud

Occupational fraud is by far the biggest source of fraud today. The Association of Certified Fraud Examiners, estimate it cost companies and governments world-wide some $$3.7 BILLION in 2013. (Some experts think the global figure is probably much higher.) Sadly the three sources of occupational fraud - asset misappropriations, corruption and financial statement fraud - are not something they or the perpetrators want to talk about. Unlike hackers who brag about their latest cyberfraud. Occupational fraud is, ACFE estimate, increasing year on year. The conclusions and recommendations in their latest report make - see - make scary reading:

  • Occupational fraud is a universal problem for businesses around the globe. Although some slight regional variations were noted in methods used both by fraudsters to commit their crimes and by organizations to prevent and detect fraud schemes, the overall trends in our data are quite consistent, both across borders and over time. 
  • The longer frauds last, the more financial damage they cause. Passive detection methods (confession, notification by law enforcement, external audit and by accident) tend to take longer to bring fraud to management’s attention, which allows the relat- ed loss to grow. Consequently, proactive detection measures — such as hotlines, management review procedures, internal audits and employee moni- toring mechanisms — are vital in catching frauds early and limiting their losses.
  • Small businesses are both disproportionately victimized by fraud and notably under-protected. While resources available for fraud prevention and detection measures are limited in many small companies, several anti-fraud controls — such as an anti-fraud policy, formal management review procedures and anti-fraud training for staff members by anti-fraud controls
  • External audits are implemented by a large number of organizations, but they are among the least effective controls in combating occupational fraud. 
  • Many of the most effective anti-fraud controls are being overlooked by a significant portion of organizations. For example, proactive data monitoring and analysis was used by only 35% of the victim organizations in our study, but the presence of this control was correlated with frauds that were 60% less costly and 50% shorter in duration. Other less common controls — including surprise audits, a dedicated fraud department or team and formal fraud risk assessments — showed similar associa- tions with reductions in one or both of these mea- sures of fraud damage.
  • The vast majority of occupational fraudsters are first-time offenders; only 5% had been convicted of a fraud-related offense prior to committing the crimes in our study. Furthermore, 82% of fraudsters had never previously been punished or terminated by an employer for fraud-related conduct.
  • Most occupational fraudsters exhibit certain behavioral traits that can be warning signs of their crimes, such as living beyond their means or having unusually close associations with vendors or customers.

Occupational fraud prevention requires a new approach as shown above.

UK Payment fraud

Although there have been several initiatives over the last year in preventing payment fraud in the UK, the 2014 figures show they are not doing very well, as overall fraud continues to rise. Highlights of the results included:

  • card fraud losses up 6% although the proportion of fraud to spending fell to 7.5p for every £100 spent
  • all card fraud growth was abroad
  • remote banking fraud losses rise 42 per cent (But banks congratulate themselves say, “Warning to customers to download anti-virus software fraud limited rise to 42%.”)
  • card ID theft fell by 14%
  • cheque fraud fell by 35% to £17.8m.

UK 2014 fraud losses by value

Source & Copyright©2015 - FFA UK

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