Fraud Management

Fraud Management deals with how to detect and prevent frauds and other unauthorized activities in the company. From the company’s point of view, fraud management goes to the three basic directions: towards customers (customer fraud), towards employees and company management (employee frauds) and toward suppliers (supplier frauds).

What is a fraud? What types of fraud are the most common ones?

The term fraud, being relatively broad in scope, includes a whole range of unauthorized, unwanted or harmful activities such as:

• theft
• falsification of information
• embezzlement
• extortion
• money laundering
• corruption

What is considered a fraud is defined by individual countries in their criminal laws. Beyond preventing criminal activities, however, each company must focus on all actions that are in conflict with the company’s interests, that is, all frauds committed against the company itself.

Most often, it involves manipulation of financial resources or financial indicators. This type of frauds includes insurance frauds, unauthorized billing, misuse of payment cards, unauthorized manipulation of accounting, unauthorized borrowing, and so on.

The second most common area of ​​fraud is unauthorized manipulation of data and information. Computer fraud or fraudulent behavior is one of the greatest risks in every bigger company. It includes both the fraudulent behavior of users in the company’s information systems, and the fraudulent behavior of administrators who have broad permissions and can often take actions unattended. Such fraudulent behavior can be dangerous not only because of the risk of financial losses but also in terms of the confidential data protection, the loss of reputation or the loss of personal data.

What are the activities of fraud management?

What can a company do in order to prevent or protect itself against fraud? It is important to have the functioning, i.e. rules, principles, code of ethics and processes, clearly defined so there is no more than the smallest possible space left for fraud. This is the role of either the management itself or the security department. It should be mentioned that a big portion of frauds are committed by the company’s management itself. Then, it is up to the owners of the company to control the potential fraudulent activity of management (see Corporate Governance).

Thus, fraud management activities focus on both the early detection of suspects and the early detection of suspicious behavior, transactions, and similar fraud indications. With a large number of clients or employees, this can not be done without analyzing large amounts of data. In this regard, tools for analyzing large data with the aim of detecting fraudulent behavior can be very useful, a simple change in pattern of behaviour can be an indication of fraud. Thus, the range of fraud management activities includes:

• Human behavior analysis in the system - helps identify suspect individuals or suspicious transactions
• Analysis of a dubious client or user - analysis of a pre-selected individual
• Change and proposal of change of rules and preventive measures
• Rules for dealing with fraudulent events

Corporate culture has a major influence on the fraudulent behavior

It is proven that the number of frauds is also affected by corporate culture. If a company is not fair with its customers and employees, this will be reflected in the number of frauds committed by employees against their company. If, on the contrary, a company’s culture is based on a fair and honest behavior, the number of frauds is incomparably smaller. it’s a natural part of the fact that the company does not behave honestly against its customers or employees, it also reflects the number of frauds committed by employees themselves against their own company. On the contrary, in companies whose corporate culture is based on decent and honest behavior, the number of frauds is incomparably smaller.