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How to identify and measure the extent of your corruption and associated fraud risk

Proactive versus a reactive response to fraud and corruption allegations, which would you choose? In trying to understand your corruption and associated financial crime risk, building a risk profile for your organisation including its insider threat is an important starting point to fighting fraud and corruption locally, throughout your organisation and its global supply chain.

Information rules the world


If you are about to build a profile of your organisation risk, you should not only look at internal sources of information but also international assessment of risk that outline the current risks and themes that may impact your organisation. One such source is the Report to the Nations published by the Association of Certified Fraud Examiners.


The 2022 ACFE study covered 2110 cases from 133 countries with a total loss of more than $3.6 billion. The average loss per case is $1,783,000. A number of the key findings in this year’s report include:


  • Corruption continues to be the most common scheme in every global region and is the most common scheme across all sectors

  • 42% of fraud schemes were detected by tip

  • Organisations with hotlines detected fraud more quickly and lower losses that those organisations without a hotline

  • Nearly half of cases occurred due to the lack of internal controls or overriding existing controls

  • Only 6% of perpetrators had a prior fraud conviction

  • 85% of fraudsters presented behavioural red flags of fraud

Are these areas that you're currently considering?


CONCEALMENT

Having an awareness of common fraud methodologies are a necessary part in the detection and mitigation of risk. The report highlights that the top 5 concealment methods used by fraudsters included;

  • 39% created fraudulent physical documents

  • 32% altered physical documents

  • 28% created fraudulent electronic documents or files

  • 25% altered electronic documents or files

  • 23% destroyed or withheld physical documents

  • 12% of cases did not involve any attempt to conceal the fraud


The significant value in control measures can't be underestimated, the ACFE research clearly highlights the importance of being able to collect your own data to detect and respond to fraud risk.


Although receiving tips is only one information source in building a risk profile, it is clearly a powerful tool. The findings also outline the common methodologies in which perpetrators commit fraud which highlights the importance of training operational staff on what to look for in behaviours and most importantly where control measures are overridden. When linked with staff that receives formal fraud training, the insider threat is clearly identified quicker and financial losses reduced, where your organisation is a target of fraud.


PROACTIVE RESPONSE TO RISK

So once you have a clearer picture of your risk, what is the next step? Do you introduce controls to mitigate these identified risks and then sit back and wait to see if they work or do you continually measure their performance? Are your policies and procedures, systems and controls or expertise and capabilities sufficient to mitigate these risks?


To support this risk measurement do you introduce proactive detection techniques such as data analysis or audit to scrutinise the areas of risk that will assist in understanding whether they are a high, medium or low risk.


Do you recognise the value of data, the data sources that can be used to assess your risk and where to collect it, or how it can be used to drive your short, medium and long term approach to risk?


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