Employers and HR professionals are underestimating the risk of fraud on their organizations – that’s the warning from one industry expert who says a significant percentage of profits can easily be lost.
“Most companies have some idea that fraud is a potential but most don’t realize how severe it can be,” says Dan Zitting, a former auditor with Ernst and Young.
“Depending on which industry body you read, anywhere from five to ten per cent of all revenue may be lost to fraud or to waste and abuse scenarios that border on fraud.”
According to Zitting – who is now chief product officer with Vancouver-based ACL – traditional anti-fraud measures are an important line of defence but still don’t guarantee organizational safety.
“Setting the tone from the top – whether it’s your code of conduct or certain policies – is a good first deterrent and putting thorough financial controls in place is another,” says Zitting.
From separating responsibilities in at-risk areas to restricting access to accounting systems, there are plenty of measures which can help prevent fraud – but they’re by no means bulletproof, says Zitting.
“Those kinds of steps are easier than you would think to subvert,” he tells HRM. “You really need that third tier of data analysis – that’s the most powerful one in being able to detect and remediate issues.”
According to Zitting, data analytics is the most effective means for both detecting and preventing fraud because even subtle evidence can be uncovered in data.
“Fraud – like any other crime – leaves footprints behind and those footprints are always in data,” he says. “Data gives employers that ability to look across the landscape, track any anomalies and spot fraudulent behaviour.”
Importantly, Zitting says data analytics can help organizations track not only fraud but waste and abuse too.
“There is a very grey line between what’s just considered waste versus what would be considered abuse and then what would legally be considered fraud if you were to go to court,” he explains. “But using data and analytics, you can monitor for all three.”
Regardless of whether it’s waste, abuse or fraud, Zitting says all three represent lost money and even the least egregious of activities can turn into something more serious.
“In a lot of cases, what starts out as low-dollar abuse and not a big concern evolves into fraud over time – that’s what happens when organizations don’t monitor,” he says.