challenges of fraud management in public and private sectors
TRANSCRIPT
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www.le.ac.uk
Counter Fraud and Counter Corruption Workshop, 5-6th March, 2015
‘Who cares about fraud and corruption and what does it mean to us?’
Audrius ŠapolaRegional Head of SecurityFinancial Services Industry
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Visible fraud vs. invisible fraud
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# Fraud is an umbrella term that covers multitude of offences (Higson, 1999), lacks a single definition and its nature is often broad and complex (Gates & Jacob, 2009; Doig, 2006)
# Size and complexity of the industry (Smith, Button, Johnston & Frimpong, 2011)
# Organizations are unaware about the extent of fraud (Button, Gee & Brooks, 2012)
# Fraud can remain undetected for years (Smith et al, 2011)
# If reported, tarnishes organization's reputation (Higson, 1999)
# Senior management avoids being blamed incompetent, etc. (FSA, 2003)
# Organizations might have low trust in the process of criminal justice (Button, Lewis & Tapley, 2009) or recoup fraud losses through other means (Tunley, 2011)
# Police statistics and global fraud surveys are of limited value (Gee, Button & Brooks, 2010; Flemming, 2009)
Why Fraud Often Remains Invisible?
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Four wise men and …a snake?
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‘Due to the nature of the financial services market and the volume of money that flows through the sector it is inevitably going to be a target for fraudulent activities and utilized as a conduit for such activities’
Wright (2012)
Is financial services industry vulnerable to fraud?
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# Don’t share fraud data# Don’t have the same fraud definitions# Don’t share data on known fraudsters# Tackling fraud is often given low priority# Rarely share data on best practices# Lack adequate training, qualifications or/and
resources for its counter fraud staff# Finally, banking legislation doesn’t provide enough
guidance on how banks should deal with fraud
Financial Services Firms
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Law Enforcement Agencies
# Often lack resources, motivation and relevant skills
# Do not always understand banking products
# Often engage in “Blame the victim” behavior
# Jurisdictional limitations
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Bribery and corruption are even more hidden activities than fraud!
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References1. Button, M., Gee, J., & Brooks, G. (2012). Measuring the Cost of Fraud: An Opportunity for the New Competitive Advantage. Journal
of Financial Crime, 19(1), 65-75.
2. Button, M., Lewis, C. & Tapley, J. (2009). Fraud Typologies and the Victims of Fraud Literature Review, London: NFA.
3. Doig, A. (2006). Fraud, Devon: Willan Publishing.
4. Financial Services Authority (2003). Developing Our Policy on Fraud and Dishonesty. London: FSA.
5. Fleming, H. M. (2009). FSA’s Scale & Impact of Financial Crime Project (Phase One): Critical Analysis (OPS 57). London: FSA.
6. Gates, T. & Jacob, K. (2009). Payments Fraud: Perceptions versus Reality – a Conference Summary. Economic Perspectives, 33(1), 7-15.
7. Gee, J., Button, M. and Brooks, G. (2010). The Financial Cost of Fraud. Milton Keynes: MacIntyre Hudson.
8. Higson, A. (1999). Why is Management Reticent to Report Fraud? An Explanatory Study. Retrieved from https://www.fraudadvisorypanel.org/pdf_show.php?id=28.
9. Smith, G., Button, M., Johnston, L., & Frimpong, K. (2011). Studying Fraud as White Collar Crime. Basingstoke: Palgrave-Macmillan.
10. Tunley, M. (2011). Uncovering the Iceberg: Mandating the Measurement of Fraud in the United Kingdom. International Journal of Law, Crime and Justice, 39(3), 190-203.
11. Wright, P. (2012). Policing and Regulating Financial Services. In A. Doig (Ed.), Fraud: The Counter Fraud Practitioner’s Handbook (pp.43-57). Farnham: Gower Publishing Ltd.
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Counter Fraud and Counter Corruption Workshop, 5-6th March, 2015
‘Setting the Tone Throughout the Organisation’
Audrius ŠapolaRegional Head of SecurityFinancial Services Industry
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Fraud prevention:• Counter fraud policies
and procedures• Risk assessments• Counter fraud training
and awareness• Vetting of staff,
customers and business partners
The elements of fraud prevention framework
Fraud detection:• Fraud monitoring tools• Audits• Incidents reporting• Whistleblowing
Fraud Response:• Incident investigations• Loss recovery• Disciplinary actions• External investigations• Lessons learned
British Bankers’ Association, 2007
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‘Fraud control – in any profession – is a miserable business. Failure to detect fraud is bad news, and finding fraud is bad news, too’
Malcolm K. Sparrow (1998)
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‘The best way to get management excited
about a disaster plan is to burn down the
building across the street’
Erwin, D., Security Manager, Dow Chemical Co.
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Naive:Organization is unaware of the
need to manage risks, processes are reactive or repetitive, learning from mistakes doesn’t exist
Novice:Organization is aware of potential benefits, but its
either experimenting with risk management or their processes have fundamental weaknesses
Normalized:Management of risk is built into routine business processes, the
benefits of risk management are understood, but not consistently achieved
Natural:Organization has a risk-aware
culture with a proactive approach to risk management
in all activities, and consideration of risk is inherent
in all processes
Risk maturity of your organization?
Hopkin, P. (2010)
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The Fireman
Broadbent (2007)
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The Policeman
Broadbent (2007)
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The Knight
Broadbent (2007)
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References1. British Bankers‘ Association (2007). Fraud Manager‘s Reference Guide. London: BBA.
2. Broadbent, G. D. (2007). What Kind of Safety Leader are You? Retrieved from http://www.transformationalsafety.com/documents/What_kind_of_Safety_Leader_are_you_NP.pdf.
3. Hopkin, P. (2010). Fundamentals of Risk Management. London: Kogan Page Ltd.
4. Sparrow, K. M. (1998). Fraud Control in the Health Care Industry: Assessing the State of the Art. Retrieved from https://www.ncjrs.gov/pdffiles1/172841.pdf.