Fraud: the masquerading menace

blog‘He eased through the security check at the airport disguised as a pilot, as he was aware that they wouldn’t question one of their own, let alone with the batch of airhostesses accompanying him. An assumed air of confidence and attention to trivial details of human mannerisms helped simplify a seemingly complex task, which was rewarded with no questionable backward glances from any of the security personnel.’ The movie ‘Catch Me If You Can’ paints a rather detailed frame of the game of cat and mouse between a fraud and the authorities and effectively sums up the thought process of a fraudster. Leonardo DiCaprio certainly did justice to the complex character portrayal which encompassed conflicting mind-sets, both innocent and diabolical, making the chase that much more difficult. While it’s an appealing entertainer, there’s a very strong message which seemingly goes unnoticed: the formulation of a well-thought out, effective and targeted plan ‘from both ends’.

In a corporate context – organizations have been facing flak for not paying due attention to safeguarding their business against fraud. While steadfast attention may have not been paid to fraudulent activities in the past; recent incidents of companies having their brand tarnished along with substantial fines associated with non-compliance have indeed made an impact on the industry. Any mishap would stand to influence both external and internal perceptions. Clients and customers may lose faith in the company while employees too may feel a sense of deception – a situation which would indeed put everything at stake.

Why then do companies seem to underestimate this liability?

Most of the time, it’s either due to a lack of understanding of the reality of the threat landscape or an inefficient and outdated anti-fraud framework. Neither of these reasons is condonable and to draw an analogy, it’s similar to imbibing an ostrich-mentality – not seeing the danger does not eliminate it.

So we arrive at the question – what would then encompass an effective Anti-Fraud Program (AFP)? The path is a well-defined one, if you know how to go about ensuring each of the following elements is taken care of with a thorough understanding of business intricacies.

To explain with an example, consider a company witnessing the following:

  • Theft of foreign goods during transit and from their plant
  • Challenges around regional promotional disparities and
  • Shortage of supply to distributors

The role of an AFP will be critical in identifying possible leakage points for products in the existing supply chain and uncovering the modus operandi adopted by entities involved in unethical practices. The scenario will also demand evaluation of the existing policies/ procedures and control mechanisms that are in place. This would aid in detecting key fraud risks owing to loss in revenue and gaps in the policy and subsequent implementation.

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The basic steps to follow would involve:

  • Obtaining an understanding of the company’s current AFP, including codes of conduct and/or ethics, fraud policies and procedures, fraud awareness training, controls monitoring, and fraud response plans
  • Evaluating current AFP against leading practices to determine areas of improvement
  • Arriving at the desired state of the company’s AFP
  • Developing the AFP

And – this is not the end of the AFP. An AFP process should be ongoing, dynamic and reflective of your company’s current conditions. Let’s just say you don’t just keep your head above the water, put on your binoculars and stay tuned.

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