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Security Enterprise Services

How to Detect and Thwart Recent Fraud Trends

Internal Controls Improve; Collusion Schemes Increase

May 14, 2013

Lelio_JasonAs fraud controls get stronger, criminal elements start teaming up to beat the system. But, as Jason Lelio points out, collusions schemes get harder and harder when faced with stringent internal controls.

Lelio is the Senior Vice President of Marsh Inc. and managing consultant for the Forensic Accounting and Claims Services (FACS) Practice, and he has been involved in insurance loss and forensic accounting for more than 16 years.  

“Overall, they’re stealing the same things they always were,” says Lelio. “But internal controls are getting better, so they have to skirt these through collusion. (Enterprises) are more susceptible to collusion now, but it’s harder.”

In order to thwart this rising trend, Lelio recommends employing surprise audits and anonymous tip lines. Anonymous tips are still the top way enterprises discover fraud, but surprise audits can get employers additional information, whether following up on a tip or investigating an internal red flag, such as rising shrink rates at a newly acquired retail location.

These detailed analyses of the inflow and outflow of inventory works similarly to a bank audit, and it’s all part of being proactive, Lelio says.

The presence of anti-fraud controls is correlated with significant decreases in the cost and duration of fraud schemes in the workplace, according to the ACFE 2012 Report to the Nations.  In general, more businesses are using anti-fraud controls in 2012 than in 2010, with particular increases in the use of codes of conduct and anti-fraud policies – each of which jumped more than three percent in two years.

The report also reveals that organizations lose five percent of revenue each year to fraud, which translates to an annual loss of $3.5 trillion. And although the median loss from occupational fraud was $140,000, more than one-fifth of the cases in the study caused losses of at least $1 million.

CSOs can strategically plan for these risks by “staying on top of it and internally monitoring risk,” says Lelio. “You have to set the tone at the top – as the business changes, controls should change too. Educate your C-Suite about where the main risks are in terms of fraud, and then launch a proactive campaign.”

Education is one of the pillars of that campaign, from the C-Suite to the average employee: “Send an annual e-blast describing signs and effects of fraud; let employees know about any potential rewards,” he adds. Reminding employees about ongoing risks helps them to stay vigilant and, hopefully, willing to report any wrongdoing.

For more information about ongoing fraud trends and how to stop them, you can check out the research available at Marsh Inc., as well as the Association of Certified Fraud Examiners (ACFE) 2012 Report to the Nations.

KEYWORDS: Collusion Scheme Forensic Accounting Fraud Investigations fraud prevention retail theft Surprise Audits

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