As a forensic investigator and licensed private investigator, I assist organisations to respond to allegations or suspicions of fraud, corruption and other misconduct.
However, my passion is the flipside of detection which is the prevention of fraud; assisting organisations to prevent and/or detect early any improper activities. From a business development perspective, this may seem counter intuitive. But, let me explain…
Fraud is an expensive business. All too often I see the direct costs fraud has on an organisation. These include the loss, which can be anything from money to data, often only recovered through appropriate insurances or as part of civil litigation or proceeds of crime and the investigation and possible litigation costs. Whilst the direct costs can range from a mere nuisance to a catastrophic impact for an organisation, the indirect costs are often far more severe. The reputational damage to the organisation and its key stakeholders can take many years to recover. The loss of trust felt by employees and other persons associated with the individual/s who perpetrated the fraud may never fully heal.
So, what can and should be done about it?
Organisations must have a targeted strategy to help prevent and detect fraud, corruption and other misconduct. It’s imperative this strategy is tailored to the organisation’s particular fraud and corruption risk profile. There is no ‘one size fits all’ solution. Similarly, as the idiom about your eggs and the basket suggests, this means having a range of internal controls and detection measures, implemented and operating effectively to help mitigate this risk. Failure to do so would be like having only one pair of shoes in your wardrobe; neat but only useful in a limited number of scenarios. It’s why Swiss army knives have not one but many tools, to help the owner be prepared for any situation.
“But”, you say, “what if I could only afford one decent pair of shoes – which type should I spend more money (or effort) on?”
The answer is simple as to which mechanism gives the best ‘bang for your buck’. Making your employees more aware. Whilst it’s true that the threat from insiders (i.e. employees or management) is strong, your employees are also your best line of defence in preventing and detecting fraud, corruption and misconduct. Think of how many employees your organisation has. Now think about the cost of implementing a surveillance system with the equivalent number of cameras as your employees’ eyes and as many microphones as your employees’ ears. We’re not talking ‘Big Brother’, we’re talking something even larger. Employees know the ins and outs of an organisation and see almost everything. Recent studies have shown nearly half (44 percent) of all frauds were detected by tip offs and complaints either via a formal whistleblowing hotline or other means.
This is supported by the Baader-Meinhof phenomenon – a cognitive bias also known as the ‘frequency illusion’. This is how it works.
Think about a time when you were going to purchase a new (or used) car. You’ve settled on one or two models in your mind. Now, you suddenly find yourself seeing these cars everywhere. Is it just that other people have read your mind and think, “if they’re thinking of buying one of those then it must be a good choice, and gone and beat you to it?” Or is just because, now it’s in your subconscious, it comes to your attention or perception more easily? This is the frequency illusion; something recently come to mind (be it a word, a name, or a car) then appears to occur with a much higher frequency for a period thereafter. So, if your employees are more aware of what ‘red flags’ or indicators of potentially inappropriate activity look like, including the latest scams or malware, then it’s more likely to come to their attention if it occurs.
Employee awareness is not the only preventative or detective tool but it is one where you already have the materials on hand for a successful beginning.