Fraud risks are always lurking: prevention is better than cure

Hardly a day goes by without media reports of fraud. From gambling addicts and thieving accountants to sophisticated CEOs and CFOs who paint too rosy a picture to the outside world of the company they know will soon go under. From "small beer" and minor damage to large-scale frauds that actually result in mega damage. From an individual victim to sometimes thousands of victims. In the private domain, business or government.

Sooner or later we all have to deal with fraud at some point. Because we are not sharp enough or too gullible and fall for a scam trick. Because we are careless with data or with passwords. Because we trust employees and third parties, even if they can easily and almost imperceptibly betray that trust. Because we are unwilling or unable to defend ourselves sufficiently given the costs involved. Because we do not adequately arm ourselves against the risks of fraud to which we are exposed.

Within the business community, the subject of fraud is not always popular. Taking preventive measures costs time and money. Necessary procedures concerning robust administrative organization and internal control cost a lot of time and money. The cost of internal and external (auditing) controls keeps rising. Compliance officers are often perceived by the commercial staff - the 'deal makers' - as inconvenient - as 'deal breakers'. Paying attention to a topic like fraud, in the minds of many, comes at the expense of time and attention to other important issues: the business, clients, employees, innovation, entrepreneurship. Moreover, issues such as privacy laws, tax regulations and sustainability already require so much attention.

It is precisely in that last topic that my warning lies: a sustainable business is a business that continuously pays attention to the fraud risks to which it is exposed. Precisely in order to protect the business, clients, employees and the perpetuation of innovation and entrepreneurship. After all: fraud causes damage that reduces profits or causes losses. Fraud can therefore jeopardize the continuity of the business and - except for the fraudster(s) - that benefits no one. It is therefore a duty of companies, directors and risk managers to be constantly alert and to give the subject of fraud sufficient attention.

Fraud should therefore periodically return to the agenda of directors and risk managers. The administrative organization and internal controls should not be static. Fraudsters always know how to find holes in the procedures used within the company. Adjustments and improvements are therefore desirable and necessary. Just like monitoring compliance with procedures, for example with test buyers and inventories at unexpected moments. But also by being open within the company about detected fraud and subsequent sanctions. Don't cover up fraud - for example, out of shame that it could happen - but be open about it. To alert colleagues and employees. To make them alert.

Tools such as the "fraud triangle" - in which the points relate to the aspects of pressure, opportunity and rationalization - and fraud risk analyses can be helpful when discussing fraud risks. As can involving third parties - for example, a fraud expert, forensic investigator, lawyer or a fraud insurer - who with a fresh perspective can often identify other fraud possibilities and risks that are overlooked internally.

The statements just mentioned contain not only risks but also opportunities: digitization creates more opportunities to detect fraud attempts at an early stage, digitization can also be used to distinguish real from fake, fraud specialists can and should make use of the technological means, preventive measures, security and tightening of procedures can be used against hacking and scams.

Fraud prevention is necessary, but it also takes attention, time and money. Just see it as an investment to prevent the worst. In other words, fraud prevention makes your fraud risks transparent and manageable and drastically reduces the chance of damages. That seems like a clear business case. Moreover: You don't want to be the subject of the next media report about fraud, do you?

Learn more about fraud prevention? Discover our fraud insurance or contact our fraud specialists. We will be glad to help you.