Finding Fraud by Using Existing Technology

The best way to uncover fraud is by using software built specifically for that purpose. However, fraud detection software can be expensive and may require that major resources be put in place to monitor it.

Keep in mind that there is a large body of evidence suggesting that corporate fraud is often uncovered by employees so an alternative would be to leverage your company's existing technology and resources in ways that will help uncover internal and external crime. 

Fraud detection tips

Heighten employee awareness. Identify areas in your business where employees are most likely to come across suspicious transactions or activities that may indicate fraud. Provide specific examples so they know what to look for and report.

Develop an action plan. Design and document a policy on how to report suspicious activity and be sure the process can be understood and followed by everyone at the company. 

Take inventory. Set up a team to look at existing technology and what your business uses, such as reporting tools, customer relationship management software, and information management systems.

Create exception reports. Using the results of the report inventory, create reports that highlight data that falls outside expected parameters. 

Reverse engineer. Use the results of previous fraudulent activity in your industry, or crimes against your own business, to see how fraud may show up in corporate data. 

Assess fraud risks annually. Determine weaknesses that make your business vulnerable to fraud and ways to combat them.

Once employees are trained in what to look for and the technology is repurposed, the results can be almost immediate.

Taking a closer look

Here are two examples of employees detecting fraud in the course of using software for their jobs. 

Example #1: An employee in a carpet manufacturer's accounts payable department noticed an unusual series of invoices to a local cleaning supplies company. The employee became suspicious because she knew that her employer had been buying its supplies from a different company for more than five years.

After a closer look at the situation, she realized that the invoices were submitted by a colleague whose brother owned an office cleaning-supply business.

The employee notified her manager who conducted an internal audit and determined the invoices were fraudulent. Fortunately, none of the invoices had been processed so the company did not incur a loss.

Example #2: A scheme to defraud Florida taxpayers out of nearly $6 million was stopped by some vigilant employees at a bank and a road contracting company.

State officials received fake invoices directing them to transfer the money to a bank account controlled by a Lebanese man, rather than to the road contracting company that was supposed to receive the funds.

Bank employees thought the wire transfers looked unusual and brought them to the attention of the bank's security office. One of the employees had also taken down the make and license plate number of the alleged fraudster's car. He was arrested by the FBI the following day and was charged with wire transfer fraud.

An employee at the road construction company also acted quickly, notifying the state immediately when the money didn't show up on time.

Lessons learned: Encourage employees who are involved in disbursing funds to exercise professional skepticism. Praise employees for bringing issues to management's attention. They will not always be correct, but the right culture increases the effectiveness of fraud detection.

© 2015