Focus on Fraud: 2015

There is a big change related to credit card fraud liability that went into effect on October 1, 2015, but it is still unclear to many how the risk of loss is shifting and what the impact will be to their businesses.

Before you spend money and time adding the capabilities to accept the credit card chip, there are some questions to ponder:

  • Do you know how many charge-backs you are currently getting for counterfeit, lost or stolen cards?
  • What is the liability that your business is now going to be exposed to?
  • Is the investment worth the reward?

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Nearly a decade ago, Microsoft introduced a vendor compliance program – the Supplier Security and Privacy Assurance Program (SSPA) – to keep tabs on vendors that handle “personally identifiable information” of their employees or customers. PII, as it is known, would represent credit card numbers, social security numbers, and the like. In the age of cyber security attacks, it is comforting to know programs like this exist.

The compliance effort required by qualifying vendors is to establish internal controls for how this information is collected, used, retained, transmitted, destroyed, or disclosed, and to make sure those controls are functioning properly. Microsoft essentially established a bar for what they consider to be reasonable protection standards (the program’s foundation is based on Generally Accepted Privacy Principles promulgated by the AICPA and the Canadian Institute of Chartered Accountants).

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Forensic Super-Geek Powers – ACTIVATE!

Benford’s Law and Forensic Data Analysis

This is somewhat of an indulgent post, but I have always been fascinated about the consistency of a forensic accounting investigative concept known as Benford’s Law.

Named after Frank Benford, an American electrical engineer and physicist, it is a phenomenological law about the frequency distribution of leading digits in many (but not all) real-life sets of numerical data. Also known as the First-Digit Law, Benford’s Law states that, in a naturally occurring set of numbers, the leading digit will appear in a very predictable distribution. More specifically, the leading digit is most likely to be a 1 and then the likelihood decreases as you move to 2 and then to 3 and so on,

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As I have chronicled many times, fraud is a dynamic and evolving issue for every business and industry. This Treasury & article on mitigating risk from wire fraud serves as a nice vocabulary lesson on some of the innovative methods fraudsters are using to gain access to your system from the outside.

Occupational (internal) fraud should still be a major concern for all businesses. However, more and more external fraudsters are realizing that, if they increase their at-bats, they will inevitably get more hits. Gone are the days of believing that because you’re a small or medium-sized business you are not a target for cyber-attacks.

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Is Your Debit/Credit Card Safe?

This week’s blog post is courtesy of CN alum John Steinhoff, who now serves as vice president of consulting at Ascendent Advisory Group.

One recent weekend, I was relaxing with my morning coffee, reading the newspaper when the phone rang. My credit card company called and asked about some recent “suspicious” activity on my credit card. Being a certified fraud examiner and avid reader of anything fraud related, I’m aware of many credit card scams, so I was very cautious of this call. After a 5-minute discussion and many questions, I realized this was the real thing. Sure enough, someone used my credit card to purchase $200 at a tobacco shop in Pennsylvania.

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Tone at the Top Drives Fraud Prevention

This is a great article from that, in a roundabout way, focuses on tone at the top as a fraud prevention technique. I am a big believer that a strong and positive tone at the top can be a business’s most effective fraud prevention tool. Strong leaders who not only have but also profess a business philosophy and demand that their teams share that philosophy, will see positive operational results as well as have a leg up on fraud prevention.

This article discusses four ways to protect your business against employee fraud and theft. These will not be the first four things you would think of in protecting your business from fraud – reconcile bank accounts,

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I’ve never been accused of being a fashion expert, but I have always found it interesting that certain fashion fads are huge for a while, eventually fall out of favor to the point of being mocked, and then spin back into popularity as time passes. Just like the fashion industry goes through cycles, it is important to look back at successful fraud schemes from the past and observe how they were accomplished and which prevention techniques were effective. You never know when those old trends will come back around.

In 2011, an investigator named Christopher T. Marquet, in conjunction with his investigative and intelligence firm Marquet International,

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I recently read an article about a utilities provider in Bristol, Virginia, that is picking up the pieces and investigating the depth of an alleged fraud that officials believe spanned 8 years. This story is a great example of the power of hotlines, but not necessarily from the point of view you might expect (or have read from me in the past).

The scheme involved two former executives of the utility and two former contractors hired by the utility to help them build out their fiber-optic cable network. The executives allegedly conspired with the contractors to defraud the utility of more than $1 million over a period of 8 years.

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This fraud story is simple, but it’s an example of a good point that is often overlooked. For background, in this case someone wrote checks to themselves and recorded them in the accounting ledgers as being paid to other, legitimate vendors or recipients.

When it comes to controls over checks, a good control system will have independent authorization of checks before they are released and a downstream review of bank statement information that will catch anything that bypasses the upstream process. This employee either intentionally bypassed the standard review process for these checks, or the organization had some lapses in their check authorization and bank statement review process that allowed these to be cashed without notice.

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Tips are by far the most common way that fraud is discovered—more than twice as often as any other method. On average, companies that have a fraud reporting hotline cut the cost of fraud by 41% and the time to detection by 50%. But setting up or subscribing to a fraud hotline can be prohibitively expensive.

Now there’s an easy-to-use fraud reporting tool available from Clark Nuber where employees of registered companies can anonymously report fraud in just a few clicks. It’s called the Clark Nuber Fraud Reporting Center, and it’s available today. You don’t even have to be a Clark Nuber client to use it.

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