The proactive fraud prevention approach is essential in today’s digital era, leveraging behavioral analytics to identify and counteract suspicious activities before they escalate into significant threats.
Complacency is the enemy of effective fraud fighting. Institutions that sail along doing business without encountering problems may believe that they have adequate controls in place and, crucially, can trust their people.
Many institutions increasingly recognize the value of being able to predictively identify current activities that could grow into future problems. They are using analytics to help uncover and address these risks.
Effective fraud and behavioral analytics involve more than summarizing and aggregating fraud data. The value of the efforts hinges largely on whether the right fraud indicators are being identified and analysed.
A misdirected fraud analysis or investigation may be of little use, yielding little insights and perhaps increasing costs of review and investigations.
But an out-of-the-blue revelation of missing funds, a customer accusation of malfeasance, or a sudden government investigation can blindside the institution and leave leaders scrambling to halt a fraud scheme and contain the damage.
Instead of waiting until trouble is at the door, enterprise leaders can take proactive steps to combat fraud. By addressing the data and technology requirements of an effective antifraud program, incorporating analytics, and implementing a system of ongoing fraud monitoring, an institution can be better prepared for the likely attempts to defraud it.
The Proactive Fraud Prevention
To detect frauds or fraud patterns in different processes and systems, the institutions need to understand and identify the common behavioral indicators of potential fraudulent activity including:
Living beyond one’s means
Financial difficulties
Unusually close association with a vendor
“Wheeler-dealer attitude” that the rules don’t apply to them
Control issues, unwillingness to share duties
Recent divorce or family problems
Further, understanding and identification of other fraud ‘red flags’ may help institutions to remain aware of changing fraud patterns and techniques and possible fraud incidents. Institutions need to take measures to:
remain vigilant.
use ‘red flags’ in conjunction with broader risk management.
take account of changes in business activities and/or control procedures that may open up new potential fraud risks.
involve staff in identifying and discussing fraud risks and how to prevent fraud from occurring within your institution.
educate all staff and raise awareness of fraud indicators.
implement systems and processes to detect early warning signs of fraud.
establish a credible mechanism for staff to report suspicions of fraud. Encourage an open culture where the reporting of genuine suspicions is acceptable.
be alert to possible collusion between staff and third parties.
ensure regular monitoring of compliance with fraud prevention and detection policies, processes, and controls.
have a fraud response plan which outlines the policies and procedures to follow in the event of fraud being discovered or suspected.
Final Thoughts
In the dynamic landscape of fraud, complacency can be detrimental to institutions. The belief in the sufficiency of current controls can blind institutions to looming threats. Harnessing the power of predictive analytics and recognizing pertinent behavioral fraud indicators are essential to proactively combat these risks. It’s not just about detection, but about understanding and acting upon the multifaceted signals that hint at potential fraudulent activities.
Institutions must foster a culture of awareness, vigilance, and adaptability, promoting open communication and continuous monitoring. Proactivity, rather than reactivity, in fraud prevention and detection strategies is the linchpin to ensure financial security and trustworthiness.