In the digital age, the most common type fraud is identity fraud. In the US alone, 15.4 million consumers was affected in 2016 by identity fraud, incurring costs amounting to $16 billion. However, other types of fraud include employee fraud, document fraud, collateral fraud, and intentional fraud. Organizations incur the highest fraud costs from employees with a tenure of more than 10 years. In effect, leaders have to place greater focus on strengthening their whistleblowing policies and reporting processes rather than rely on internal/external audit. Almost half of initial detection of occupational fraud cases has been via tips, both globally and in Asia-Pacific. Coming in at a far 2nd and 3rd place are management review (14.46 % globally) and internal audit (14.4% globally). It’s important to note that provided statistics can only account for reported costs – the real numbers of fraud and their costs are most likely higher.
According to GD, “The total cost of a fraud attempt and the complete set of risks facing a financial institution in the aftermath of a fraud attack go far beyond the fraud losses itself.” That is, organizations must also account for legal costs, investigation costs, reputational risks, as well as eroded confidence and customer loss. An effective fraud framework will include prevention, detection, and deterrence. Organizations often focus on prevention and detection and neglect fraud deterrence, which involves proactive rather than reactive measures. Given the high occurrence and costs of fraud, both financial and reputational, organizations with successful fraud management frameworks in place could have an edge over competitors.
Global Conference 2018 Highlight: Fraud Management
9 The IERP® Monthly Newsletter September 2018
On the 2nd day of the Global Conference, a break-out session on Fraud Management featured GD Balasubramaniam, SVP of Risk Management at a multinational finance and banking corporation. Said GD, fraud cannot be totally eradicated; human greed and the greater complexity of crime make fraud a constant risk. The costs of fraud can be steep: financial loss, reputational loss, decreased company morale and investor confidence, as well as increased audit costs. Thus, companies have to ensure they have placed appropriate measures to minimize the occurrence of fraud.