Commercial Fraud and Risk

Posted by Melinda Toy on Dec 20, 2015 06:00:00 AM

Topic: ALL

Padlock on keyboard symbolizing protecting against online fraud

The war against internal and external fraud remains. Furthermore, the current commercial fraud landscape continues to change the types of fraud, how it impacts businesses, and the best practices needed to mitigate potential fraud loss. As payment options change, new twists on fraud schemes and techniques surface. Although today’s sophisticated technology and online information tools provide more convenient ways to conduct business, they also turn payments fraud into a global issue.

Building an effective deterrence plan is critical, since a great deal of time and money is spent trying to reconstruct fraudulent transactions to track down the perpetrator and reclaim missing funds. Most people who commit fraud in the workplace are not career criminals; they are long-time trusted staff members with no criminal history. Most incidents of frauds are not one-time events either. The famed criminologist, Donald R. Cressey, originated the Fraud Triangle hypothesis, which outlines three factors that must be present for an ordinary person to commit fraud: Pressure, Opportunity, and Rationalization. The Fraud Triangle applies to the majority of embezzlers and occupational fraudsters but it does not apply to the person who takes a job with the intent to steal from the company.

All companies, small, medium, and large, are vulnerable to business fraud, which leaves room for a variety of considerations. Does your company have adequate controls in place to prevent it? Do you test your company’s fraud health, and if so, how frequently? You should also take steps that may help prevent fraud. Some ideas are to conduct an annual fraud risk assessment, which is a best practice that can easily be implemented with little to no expense to your business. Utilize free training resources featuring checklists and videos; samples can be found on the Association of Certified Fraud Examiners (ACFE) website. Become familiar with a fraud prevention checklist that can help you identify inherent risks and implement policies and procedures to mitigate the risk of fraud loss.

We see a number of financial fraud cases originating from phishing emails, to keystroke loggers, to more sophisticated attacks like ZeuS malware; however, conventional check fraud continues to be the number one type of fraudulent attack, despite the decline in overall check use. According to the AFP 2014 Payments Fraud and Control Survey, the second most popular vehicle for payments fraud is corporate and consumer credit and debit cards. On a more positive note, ACH or electronic debit fraud has decreased in the past year.

Financial losses from check fraud reach into the billions of dollars each year and affect companies of all sizes and industries. Although ACH fraud decreased in the past year, the increased volume of ACH payments still creates an increased potential for ACH Fraud. This white-collar crime is no longer limited to large corporations either. Financial institutions must make fraud protection tools, such as check and ACH positive pay, an integral part of their cash management product and service offering. These powerful transaction management tools are designed to prevent and mitigate losses due to check fraud and unauthorized ACH debits.

Most fraudsters understand that best practices and technology may vary with the size of a company. Where larger companies might have sophisticated technology and staff dedicated to more advanced security procedures, many smaller- or medium-size companies may not. Remember to be on guard against inside jobs, which include long-term, loyal employees, too. Ensure you have procedures in place to detect and deter fraud. Educate your staff not to click on links or open attachments from unsolicited emails. Never supply confidential information online, even if it appears to be from a company with whom you do business. Utilize resources to help mitigate fraud risk, which today are available to companies of any size. Talk with your trusted advisors to understand what tools are available to mitigate risk and understand what insurance you have in place.

To learn more, contact one of our local Commercial Bankers.