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Anti-fraud basics for any size business

18 November 2022
JUMOnaut Vishnu Nketia, saying

As we mark International Fraud Awareness week, our Compliance Associate Vishnu Nketia considers the prevalence of fraudulent activity and shares some simple thoughts and steps that can reduce the negative effects it has on business and society.  

According to research conducted by Crowe Global, fraud is costing the global economy US$ 5.127 trillion each year. This is almost twice Africa’s economies combined, where a large portion of micro and small businesses are in their nascent stages. It’s not surprising that some countries classify fraud as a predicate offence. In fact, the 6th EU Anti-Money Laundering Directive also lists fraud as a predicate offence.

Anti-Money Laundering reporting is one of my functions at JUMO, but the prevalence of fraud is bigger than that and can be classified into many categories. At a basic level, fraud is either targeted at an individual or an organisation, in the form of internal or external fraud.

Organisational fraud requires businesses to have clear processes and procedures in place to prevent fraud from within, usually perpetuated by employees, or from the outside through associations with vendors, customers etc. Internal fraud can be extremely detrimental to an organisation, especially when there is collusion between employees, because it often renders internal controls useless.

Understanding the potential motives for fraud is really the best 

means of prevention.

The Fraud Triangle

Dr Cressy’s fraud triangle, which was put forward in the 1950s, lists the motives for the perpetration of fraud as: pressure, opportunity and rationalisation. Of the three, opportunity is really the only component that a business has control over. Examples of opportunities for fraudulent practices include weak internal controls and inadequate accounting policies. Rationalisation refers to an individual’s justification for committing fraud and pressure is usually the motivation to commit fraud, which a business has no control over.

That’s why adopting an effective fraud program, ideally run in tandem with an entity’s overall compliance program, is so important. This is especially true for the financial services sector, where there is high susceptibility to fraud.

A fraud risk assessment is the first crucial step towards the development and operationalisation of a more robust process for the detection and prevention of fraud. It will help identify areas most prone to fraud so that resources can be allocated to those areas to mitigate the risk.

Some anti-fraud measures that can be adopted include:

  • Zero-tolerance tone from senior management
  • Anti-fraud training programs
  • Effective fraud tip hotlines
  • Protection for whistleblowers
  • Robust Know Your Employee (KYE) measures

Although fraud risk can’t ever be totally eliminated, it can be controlled, or at the very least reduced with the right approach. It comes down to innovation. The fraudster is constantly thinking of ways to outwit controls. Businesses of all sizes should ensure, as a first step, that fraud prevention is embedded in their products and services. Think of it as fraud prevention by design.

Some helpful resources

International Fraud Week
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