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Innovative, industrious and nefarious fraudsters

In 1602, English Lord Chief Justice, Sir Edward Coke, stated, "Fraud and deceit abound in these days, more than in former times." Although uttered more than 400 years ago, Sir Edward Coke's words ring as true today as they did back then. The problem is that, while we have created better techniques to counter fraud, fraudsters have been evolving as well. They are the cleverest of criminals and they have much to gain by using the same new technologies as the rest of us.

With the global growth of the Internet and the increasing connectivity of business data in digital form, fraudsters have more avenues and access points than ever before. And because these criminals are so determined and industrious, it has become increasingly difficult for companies to protect themselves against the efforts of high-tech hoodlums.

In order to fight fraud, business and operational managers need to gain a better understanding of the general types of fraud and learn how to adopt a strategic response and a range of practical measures that can be implemented using resources readily at hand.

Hackers, dishonest customers and enemies within the gates

White-collar thieves can be very creative when it comes to fleecing the giants. Some quick examples are:

* Using valid account information to impersonate customers.

* Abusing a 'trusted supplier' relationship by subtly inflating invoices - billing organisations for goods or services never received.

* Bypassing security protocols from within the company to hide embezzling activities. Yes, unfortunately, sometimes employees are involved in fraud and can severely damage the organisation. They can often be more effective because they are inside the security fence and know what the policies and procedures are capable of trapping. They also have the advantage of knowing intimately the vulnerabilities in an infrastructure.

How bad is it?

SAS's UK office has upgraded its estimate for total fraud in the UK from £14 billion to £18 billion annually, or almost R215 billion. This follows global trends of rising fraud.

The Association of Certified Fraud Examiners (ACFE) in the US estimated fraud in 2002 at 6% of total revenues and that 'applied to the US Gross Domestic Product, this translates to losses of approximately $600 billion, or about $4500 per employee'.

Here is another interesting set of statistics offered by ACFE: "Frauds committed by employees cause median losses of $60 000, while frauds committed by managers or executives cause median losses of $250 000. When managers and employees conspire in a fraud scheme, the median loss rises to $500 000." Increasing reliance on technology in business transactions and identity verification will enable greater scope for fraud. And who bears the brunt of these losses? Primarily, the company must deduct them from its gross profits each year, but the loss is spread across all of its customers in higher prices for goods and services. In the end, we all pay the price.

Why it is difficult to stop fraud

No company wants to admit - even within its own walls - that they are vulnerable to fraud. It is bad press and for publicly traded companies, it can have a negative effect on the value of shares. Few executives or managers want to dwell on the idea that their own people might be stealing from them because these are the individuals who must be trusted in order for the company to function. So, a blind eye is often turned to the problem with the falsely comforting thought that the problem is not severe and besides, there are control measures in place. The auditors would have caught it, would they not?

Even when fraud is discovered, prosecution is not always the most financially appealing option because sentencing tends to be light and compensation awards low, when compared to the damages of the crime itself.

Creating an anti-fraud corporate culture

A mere 1% reduction in fraud-related costs can typically result in a 10% increase in a company's profit margin. To achieve the same increase in profit, an organisation would have to significantly increase sales, reduce overhead or reduce staff numbers.

Across every sector and industry, from banking to insurance, from online retail to telecommunications, SAS is helping customers by providing the analytical tools and software solutions to detect and prevent fraud.

And while the battle against fraud is a never-ending one, every dollar, pound, euro or yen a company saves goes towards profitability and strengthens the company's standing in the marketplace.

By integrating all of internal data systems with a data warehouse for fraud analysis, a company can also compare it against external fraud-related data. Patterns and anomalies become more readily identifiable. Suspicious activities can then be isolated, measured and tracked. Anti-fraud solutions from SAS will help organisations leverage the investments they have already made into the various systems that exist throughout their enterprises because SAS solutions utilise built-in segmentation, clustering and decision-tree analysis models to create usable intelligence out of these otherwise disparate silos of data.

Lastly, companies should follow through on their anti-fraud strategies by bringing in professional investigators to work on cases of detected fraud. Utilise effective sanctions, including appropriate legal action against people committing fraud, whether they are customers, employees or the guy who delivers packages. Make it clear that yours is an intelligent enterprise and one that strikes back at crooks.

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