Fraudster Modus Operandi: Warning Signs & Safeguards (Part 3): Solutions

Image of blocks collapsing in a domino effect until being stopped, represents ability to use solutions and safeguards to prevent fraud destroying the businessOften fraudsters are driven by pressure; this can include the need to hold up an ailing business, personal relationships, gambling habits, extravagant lifestyles and other emotional circumstances or addictive traits.

Fraud can never be completely eradicated; however, safeguards can and should be put in place to minimise risk of it occurring and it accordingly impacting upon the business on a financial, operational or reputational level.

Evidence has shown, most frauds start off small and then when gone unnoticed escalates from there. Often fraud is not committed simply over weeks, rather over a period of a year or longer. Many of those who commit fraud do not start off with an intention of doing so. In some cases the fraudster morally justifies their behaviour because of beliefs that they ‘are being paid low’ or even that they ‘have far greater need than the company who already have enough’.

Demetri Hughes outlines several common fraud indicators learnt from the cases presented in ‘Part 2: Case Studies’, where fraud might be occurring in an organisation:

“Good indicators that sound alarm bells that fraud is a risk, include:

  • Poorly organised offices and/or accounting systems.
  • Poorly managed or unquestioning obedience of staff.
  • Low morale and/or high staff turnover.
  • Complex structures.
  • Remote or poorly supervised locations.
  • Unexplained expensive lifestyle of a staff member.
  • Untaken holidays, particularly when the person is the bookkeeper or who has access to money.” 

Demetri continues by discussing technological solutions used to combat spending fraud.

“Businesses are increasingly looking to technology to implement safeguards across the organisation to protect themselves against fraud, ways to do so include implementing usage of:

>>> Card reconciliation software:
Ordinarily purchasing cards allow staff to obtain goods/services directly from a supplier, bypassing the normal procurement processes (paperwork then needs to be reconciled). Software should be used to automate this process, providing greater control over spend with suspicious spending or unusual spending patterns able to be identified quickly.

>>> Spend analytics software:
Usage of software can be implemented providing a single view of organisation expenditure, allowing for quick detection of anomalies. Accidental errors that this solution would easily highlight include, billing mistakes and invoice miscalculations, which can then be traced back to the managers, also allowing for detection of potential weak spots with loopholes accessible by fraudsters.

>>> Electronic document management:
If the collapse of Enron in the United States of America demonstrated anything, it was how easily bad agents can destroy paper documentation. Additionally, paper documents are easily doctored by some to create false audit trails.

By using a secure electronic documentation management system, this enables for all invoices, purchase orders and financial documents to be imaged and stored in an electronic archive. Accordingly, these documents cannot be altered, shredded or ‘lost’, as such creating comprehensive audit trail.”

Image of cyber lock, representing the ability to use technology innovations to prevent fraud

Fraud has the potential to destroy long-standing and otherwise strong companies. However, it does not have to have that kind of power.

Companies can and should implement strong checks and balances to mitigate risk of fraud, so that if a fraud were to take place it can be detected when it is still minor in size, before it escalates in severity, whereby the fraudster becomes more brazen to commit very large fraud, resulting in the company losing significant amounts of money. Similarly, strong brand protection planning strategies, allow organisations to have a comprehensive but actionable plan in place, to address stakeholder concerns quickly and smoothly.

Having extensive Issues & Crisis Management and Risk Mitigation planning, processes and systems in place allow businesses to return back to the normal order of operations, without the complete eroding of confidence when fraud does strike. There is a pressing managerial decision to be had, spend some funds now to ensure planning and systems are in place to combat fraud or alternatively, face one of the greatest existential threats an organisation can come up against, that likely would cost significantly more.

If a business believes fraud is already taking place, it is critical to obtain professional advice immediately. 1Up Communications is experienced in working with a clients’ senior management, lawyers and other stakeholders to implement a rapid response plan to handle fraud.