Managing fraud risk: 6 steps to follow

Fraud risk management is crucial for any organisation that aims to grow and keep expanding.  Whether your business is in finance, retail, technology, or any other sector, fraud remains a significant concern, with methods constantly evolving. Card fraud alone, a very common crime that affects both individuals and businesses, is expected to account for USD $43.5 billion worth of losses by 2028. In 2021, that number was USD $32 billion. Managing fraud risk is key for minimising how many financial and data losses the company suffers. 

Managing fraud risk: 6 Steps to follow

To control fraud risk effectively, companies need a strategy and a well-thought-out plan that will assist them in the short and long term. Businesses should:

1. Be proactive – plan ahead
2. Evaluate existing controls
3. Develop clear policies and procedures
4. Continuously monitor fraud
5. Train employees of all levels
6. Conduct an investigation as soon as possible

1. Be proactive – plan ahead

The first step in fraud risk management is to change the mindset of the higher-ups from a reactive to a proactive approach. This means regularly assessing potential weaknesses and threats and identifying which areas could be the most vulnerable to fraudulent activity. To do that, a fraud risk assessment will be needed. 

A fraud risk assessment is how an organisation identifies potential fraud risks and categorises them based on their likelihood and potential impact. This assessment allows organisations to create a risk matrix, helping managers choose the appropriate response for each type of risk. For example, our customers use Polonious to develop their own risk matrix, to help them visualise which risk they need to prioritise and develop their action plan accordingly. 

A risk team can be created to determine which fraud risks pose the most significant threats to the organisation. They can identify these risks by looking at historical data, trends over the past few years and external influences that could increase fraud risk. 

2. Evaluate existing controls

The team should then review any current fraud prevention measures. They would need to assess their effectiveness, including any history of past detected fraud and whether the current measures can be easily bypassed by fraudsters. Without running risk control evaluations, the business may not know how to protest the company against risks that are not even visible to them. Interestingly, NASA recently praised a hacker for helping them identify weaknesses and vulnerabilities they had not detected yet. 

Ethical hacking can be very helpful if businesses are looking to improve their fraud risk management as it can highlight potential areas the business has not noticed. If the current controls are found to be lacking, the company will need to introduce new measures. These could be:

• More regular audits
• Scheduled mandatory software updates 
• Creation of anti-fraud policies

3. Develop clear policies and procedures

Develop policies that clearly define acceptable behaviour, outline how to report suspicious activities, and specify the consequences of fraud. Compliance officers should ensure that all employees understand these policies through ongoing training and consistent communication.

When developing the policies, organisations should consider ways to reduce three key aspects of the fraud triangle:

• Motivation: What financial incentives might drive someone to commit fraud?
• Rationalization: How might an individual justify fraudulent actions against your organization?
• Opportunity: How accessible are opportunities for committing fraud without detection?

4. Continuously monitor fraud

Fraud monitoring plays a critical role in preventing fraudulent activity. Continuous fraud monitoring involves consistently tracking all customer and employee actions to spot unusual or suspicious behaviour. From the initial login to later financial actions like payments or transfers, this monitoring process observes all activities, both monetary and non-monetary, strengthening fraud detection. This system can help the business check whether there is suspicious activity such as identity theft or card fraud and put a stop to it right away. 

Our customers integrate their own fraud detection software into Polonious so we can receive the red flags instantly. This allows them to achieve a faster and better-communicated investigation. 

Fraud monitoring can be especially effective when focusing on patterns such as: 

• What devices does the employee or customer usually use
• What IP addresses they usually log in from
• Customer/employee activity and financial patterns

If something seems out of the ordinary, the organisation can send the employee or the customer an email to warn them and check whether this is them. 

5. Train employees of all levels

You cannot combat fraud risk effectively without creating a risk-aware culture. Staff as well as external contractors should be receiving fraud training as part of working with or for the business. The company should also run fraud awareness campaigns to increase staff awareness of fraud scenarios. 

Fraud training should be part of onboarding but should also be integrated into quarterly or annual training. The training provided should be reviewed often to ensure that it remains relevant and interesting. Usually, the biggest flaw of training programs is that they become repetitive and boring, with employees showing little to no interest in doing them. To fix that, communicate with employees and ask them for their feedback so fraud risk management can be improved. 

6. Conduct an investigation as soon as possible

Even if fraud risk materialises, investigating fraud promptly is crucial to minimising its impact on an organisation. Quick action helps to contain potential damage, as the longer fraudulent activities go unchecked, the more harm they can cause financially and reputationally. By launching an investigation immediately, a company can quickly gather evidence, identify vulnerabilities, and take corrective action to prevent further losses. To shorten investigation times, our clients use Polonious as they know that we will provide their investigators with all the necessary tools to complete an efficient and successful process. 

Making the right decisions fast is very important for the organisation to maintain its trust with both employees and customers. 

Are you facing fraud risk in your organisation?

You are not alone. Most businesses around the world face some degree of fraud risk as fraudsters do not discriminate. If you want to investigate cases faster to improve your fraud risk management, reach out, and one of our friendly staff members will share how we can help you. Book a free demo today!