Fraud risk management has always been an essential part of any company’s overall risk management process, although the amount of effort to manage this risk will differ, depending on the type of business and industry sector. Fraud risk management has always been tricky to negotiate – today even more so, thanks to the increasing involvement of technology in all aspects of business.
Digitalisation has been a common buzzword in every industry over the past few years, even more so in the Covid-19 era. To remain competitive and reach customers faster and further, companies started embracing digital technologies in customer acquisition, product sales, receiving payments and many other areas. And in the Covid-stricken economy, reaching customers digitally was the safest way to do business. Many organisations without a digital outreach mechanism failed, or will be prone to fail as the pandemic continues. But almost every organisation seems to be determined to learn from the pandemic and improve customer experience by tapping into digital technologies. Before the pandemic, digitalisation was seen as nice to have, but the pandemic has made it a survival mechanism.
The common understanding is that companies tend to stop all discretionary spending during a pandemic or economic downturn, due to whatever might have caused the downturn. Cost saving and being economical in whatever companies do is the norm during a pandemic – continuous investments in digital technologies may be the exception, but hardly a surpising one given the benefits of engaging customers digitally.
An increasing level of fraud risk
With the increased digitalisation level in companies due to the reasons mentioned above, the remote processing of transactions and digital processing of payments have become the new normal, making it easier for fraudsters and cyber-criminals to perpetrate fraud. Customers are becoming digitally literate about how to transact online, but that doesn’t necessarily mean they understand the nuts and bolts of the risks they are facing. Therefore, it is incumbent upon companies to ensure systems can identify the vulnerabilities and flag them up before the brand’s profit or reputation are endangered.
In the digital context, manual prevention methods become impractical and less relevant. Companies need to start looking at fraud management using digital tools, and fraud management has to be performed on a real-time basis instead of being identified after it has occurred. Two areas will be crucial to fraud management in the digital economies in the future – without them working in coordination, the effectiveness of the future of fraud management will be in doubt.
Use of digital tools in fraud management
When it comes to digitalising businesses and facilitating a seamless customer experience in the battle to win customers, corporates have to remember one thing. Most of the time, there will be an increase in fraudulent activities through digital technologies and connectivity to the internet. Fraudsters are getting more sophisticated with their attacks, so companies must pay greater attention to managing digital fraud with digital tools.
Companies have to focus on the tools that incorporate AI, machine learning, and big data concepts without just limiting the rule-based fraud identification mechanism. Further, reporting of fraud red flags and fraud incidences have to be on a real-time basis to prevent fraud in the first place. The detection alone will not be the solution, because of the speed with which transactions are processed without a proper audit trail. “Prevention is better than cure” holds true in fraud management in the digital era.
Digital literacy of anti-fraud professionals
Historically, anti-fraud professionals did not need sophisticated digital know-how to understand how fraud happens and how it can be identified and prevented. But with the increasing proliferation of digital technologies and companies investing in digital tools to manage fraud, anti-fraud professionals need to be not only digitally literate, they also need to keep that digital literacy up to date.
The pace of development of fraud management tools has been rapid when compared with several years ago, in part due to the increased demand from companies. However, one issue is that those in charge of using and managing those tools are in many cases not equipped with adequate knowledge of the subject matter to be able to do so efficiently.
Therefore it becomes vital for companies to start investing in digitally literate employees when they staff forensic teams. In many cases where companies tried to educate old-fashioned forensic professionals in this new knowledge, I was reminded of the old saying, “you can’t teach an old dog new tricks”. Hence, to achieve success in fraud management in the digital era, companies need to think about the level of risk management, and the level of cyber-security knowledge in the people they hire.
If not, mere investment in the digital tools with the latest technology in fraud management would not yield the expected results and expectations of such investments.
The Institute of Risk Management has developed a Certificate in Digital Risk – this new specialist certificate, awarded by the IRM and developed with support from the WMG Cyber Security Centre and Department of Politics and International Studies at the University of Warwick, has been designed to equip individuals to apply and develop their skills in an increasingly digital world.
IRM also offers Certificates in: International Enterprise Risk Management, Financial Services, and Supply Chain Risk. Enrolments close on the 7th January 2021.
For more information please click here.
Saman Bandara, Global Ambassador APAC, Institute of Risk Management Partner, Head of Assurance, Financial Services, Head of Forensics & Forensic Technology, EY Vietnam