The importance and strategies for effective fraud risk management


Last modified on April 19th, 2024

Any organisation is at risk of fraud. Regardless of size, sector, or country and from within or without. It is a global problem, and it is estimated that a lot goes undetected or unreported. It may be difficult to put a number on the true cost, but the statistics are not encouraging. The international accountancy body CIMA (Chartered Institute of Management Accountants) looked at various surveys and found that “organisations may be losing as much as 7% of their annual turnover as a result of fraud”.

All companies are at serious risk of fraud

There are various ways in which companies are open to white-collar crime, both from their own employees and outside perpetrators:

  • Internal risk: employees can exploit systems and processes to divert funds to their own accounts or to others’, defraud clients, launder money, use embezzled money for illicit purposes and so on. A 2020 survey by PwC reported that 37% of frauds were committed by employees and 20% involved an employee colluding with another party.
  • External risk: if cybersecurity is compromised organisations can find themselves at risk of business email compromise (BEC) and all its related elements (phishing, ransomware, CEO fraud, ID theft and so on). The FBI’s 2020 Internet Crime Report listed losses in the US due to business email compromise (BEC) and EAC (email account compromise) as over USD 1.86 billion. Corruption and bribery are also possibilities.

Employees with access to funds are most likely to be the victims or perpetrators of fraud. Therefore, finance department employees are most at risk. They can use their position to exploit weaknesses in company systems to use or acquire funds or commit accountancy fraud. They may deliberately collude with others through corruption, blackmail, or bribery. They can be manipulated by outsiders into diverting funds to fraudulent accounts and become the innocent, unwitting victims of fraud, scammed into transferring funds.

Organisations need robust procedures, systems, and software to help protect against these internal and external threats. Fraud does not only impact a company’s bottom line. It can affect a company’s reputation and goodwill. And if an organisation is found to be negligent by regulators or the courts there can be hefty fines to pay. It is not just company money at stake: customer data and client money must also be secure.

What is fraud risk management and why is it so important?

To effectively protect against fraud an organisation first needs to identify what its risks are. An effective fraud risk management framework can then be established to adopt systems and processes to mitigate those risks. It is a vital part of business strategy. As fraud increases so does scrutiny by governments and regulators. Companies must be able to demonstrate that they are proactive and committed to fighting fraud using a comprehensive and targeted approach. They need to find and fix the weaknesses in their systems and then monitor and maintain them. The potential regulatory, legal, financial, and reputational costs are too high to ignore.

Identifying and managing fraud risk

Fraud needs to be prevented, deterred, detected, and investigated. By auditing company practices and procedures and establishing and correcting weaknesses organisations can stay one step ahead.

  • Education of employees is key. Business email compromise frauds evolve constantly, and employees should be aware of the social engineering techniques fraudsters use to obtain information. They should understand how information is then used to obtain funds and the warning signs to watch for.
  • Weaknesses in processes should be addressed. Web-based emails should be avoided to make it harder for hackers. Multifactor authentication should be employed for systems access. The movement of funds should undergo a strict process that cannot be overridden by an individual. Payments should require dual approval by a limited pool of people. Payment details and changes should be verified independently of email requests. Audits should be performed regularly and with sufficient detail to detect anomalies.
  • Manage risk with systems. Software that is designed to take out the risk of human error or deliberate fraud will also save time and free up employees to perform other duties. Trustpair’s software verifies bank and corporate details worldwide and runs automatic checks of your payment files to detect suspicious behaviour.

Company fraud and risk management policy

Once an organisation has identified weaknesses making them vulnerable to fraud and instigated changes it is important to maintain this as an ongoing process. A company-wide policy should be established ensuring cross-department understanding and cooperation. Goals, responsibilities, and accountability should be made very clear.

Early detection will deter others and prevent much larger losses. We would love to demonstrate how Trustpair software can augment your fraud risk management programme. Contact us to request a demo and help keep your business safe.


Key Takeaways:

  • All organisations are at risk of internal and external fraud
  • Weaknesses can be identified and managed, and robust policies introduced
  • Trustpair software will give extra security and peace of mind

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