4 ways to take a smarter approach to counter fraud

Financial Services Specialist, IBM

Fraud is today is a clear and present threat to businesses around the world. According to the Association of Certified Fraud Examiners (ACFE), each year fraud costs global business approximately $3.7 trillion. Yet despite the scale of the threat, and the potentially huge monetary losses involved, many companies continue to silo responsibility for fraud management within individual departments or lines of business. For businesses seeking a smarter, more proactive approach to meet this growing threat, the following four counter fraud best practices can help transform—and strengthen—your organization’s resistance to fraud in its diverse forms:

1. Take an enterprise-wide view

Traditional siloed approaches to fraud impede executives and senior managers in gaining a clear picture of potential threats. With accurate and comprehensive data on the source of a threat, and its interactions with parties in your business, your counter fraud operations are enhanced while your decision makers are empowered with more detailed understanding of your firm’s potential exposure. Recent innovations in fraud prevention analytics and multi-channel fraud analytics—such as Entity Analytics and Social Network Analysis—can strengthen your counter fraud capabilities and give key decision makers the insights they need into potential threats across the enterprise.

2. Adopt a proactive counter fraud approach

Fraud threats rarely emerge “out of the blue.” According to the ACFE, more than 90 percent of occupational fraud incidents throw up at least one behavioral red flag before the fraud is detected. Identifying these red flags, however, requires that a firm approach counter fraud proactively. For example, by using predictive analytics and Social Network Analysis your firm can rapidly analyze vast volumes of data to identify potentially costly threats before they happen. Businesses can reduce fraud-related losses by up to 60% by proactively identifying these red flags.

3. Be informed with insights from advanced analytics

While analysis of internal, structured data is useful in informing a firm’s counter fraud operations, it is often in the larger volumes of unstructured data—from both internal and external sources—that counter fraud operations locate data enabling identification of non-obvious relationships and threats. By utilizing advanced analytics for fraud detection and fraud prevention, and natural language processing to sift structured and unstructured data, organizations can obtain the context-sensitive insights they need to identify threats before they lead to costly losses for the business.

4. Develop a multi-layered defense is, of course, only one of the channels by which businesses can lose revenue. Other channels—whether non-malicious such as error and waste, or malicious such as cyber attacks and hacking—can also result in significant losses to a business. One of the advantages of developing a multi-layered defense to help protect against fraud is that—as an added value—this layered structure can also help protect a business against all of these other loss channels simultaneously. For example, at the outer layer, a perimeter defense against cyber attacks can be built upon processes that help protect against losses caused inadvertently by authorized users. In turn, this should be supported by a governance layer that ensures key processes are executed appropriately. These layers provide protection against losses due to waste and error, as well as defending against cyber attacks. Finally, an inner layer can help detect, prevent and investigate fraudulent attempts to evade controls implemented by the outer layers. The added value of this multi-layered defense structure illustrates how advanced counter fraud can not only be the smarter, but also the cost efficient, choice.

Adoption and implementation these best practices for counter fraud operations will not only help businesses fend off fraud threats, but also go a long way towards helping identify channels for fraud—as well as potential channels of waste and error—before they lead to business losses.

While fraud is a significant threat to global business today—it is not an insurmountable one. Discover IBM's industry-specific solutions optimized for banking fraud management, as well as insurance fraud detection and fraud prevention.

Find out more ways to protect your business by watching this Business Reporter interview on modern fraud and counter fraud operations.