The Accidental Fraud Detector

Posted on Apr 20, 2016

By Pete Miller, CPA, CFE

It is often said that hope is a wonderful virtue but a terrible strategy. The same can be said for hope as it relates to fraud prevention. I hope we hire the right kind of people.  I hope the controls we have in place are strong enough.  I hope the bank will catch anything unusual.  When hope is the major strategy, then you are leaving fraud detection to luck and happenstance.

In their Report to the Nations on Occupational Fraud and Abuse, the Association of Certified Fraud Examiners has consistently listed “accidents” among the methods that eventually caught an actual fraud.  In fact, accidental detection accounts for 7-8% of all discovered frauds, according to the ACFE study, and is the fourth most frequent detection method. While it certainly happens often enough, if you are considering addressing fraud risks for your company, I would not rely on accidental detection as a first line of defense.

Following are two examples of fraud cases in the news that have an element of luck in them or were caught by accident.  The first relates to an electronic banking fraud scheme, where a misspelled word meant the beginning of the end for the fraudsters.  The second involves Mattel, Inc. (the maker of Barbie dolls) and a scam that is growing with frequency and success: the Fake CEO e-mail scam.

For Mattel, luck took the form of a holiday – Labor Day in China. The fraudsters sent their ill-gotten gains to China, where it can be extremely difficult to retrieve money.  Mattel had a short window of time to put pieces in place and get local law enforcement involved. The result – they were able to claw the funds back. Had this happened one day sooner, they likely would have had to kiss their money good-bye.

Both of these cases involved electronic banking fraud and both involved large sums of money.  For most businesses, and particularly small-to-medium sized ones, cash is the lifeblood of the company and should be the top priority for safeguarding and fraud prevention.

This is not to say that the two victims in these stories solely relied on luck or hoped that any significant losses would be caught by accident. They likely had many other fraud prevention tools in place.  But let this serve as a lesson to those evaluating their online banking protocols and designing fraud prevention programs: cash is king and deserves your attention.

Fraudsters are very sophisticated these days and electronic banking scams have become a weapon of choice. All businesses, large and small, are targets. Watch over your cash very carefully and, in the case of the Fake CEO scam, make sure that all wire transfer requests are approved by voice, not just an e-mail.

The scams are constantly changing and banks are setting up new tools to help defend against them.  Plan to have regular contact with your bank to understand how they can be part of the defense program.

Build a better mousetrap.

© Clark Nuber PS and Focus on Fraud, 2016. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Clark Nuber PS and Focus on Fraud with appropriate and specific direction to the original content.

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This article or blog contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.

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