Every business is susceptible to fraud, due to the nature of modern commercial operations. Success in business means having a strong supply chain made up of a network of third party organisations. It also means having a thriving workforce, and an infrastructure that is agile, scalable, and fit for purpose. While all these things are essential ingredients to long-term business growth, they also represent points of significant vulnerability in the enterprise.
Corporate fraud can have a resounding impact on businesses in the long term. In addition to the immediate financial implications, cases can also result in lasting reputational damage, and can cause significant staffing or supply problems, depending on the source of the fraudulent action. The structure of modern businesses, coupled with the number of areas of vulnerability they incorporate, means that corporate fraud is very common. Criminals enhance their tactics in tight alignment with technological advances, so prevention is highly challenging. It is possible to minimise the risk, though, by implementing strategies to combat the methods most often employed by fraudsters.
What is corporate fraud?
Corporate fraud is a broad term that encompasses any illegal activity undertaken against a business, for financial gain or other unethical motivation. Those responsible for such actions can range from organised crime operatives to individuals connected with or employed by the company in question. This means the purpose of the crime also varies, from the funding of terrorism to a staff member trying to steal a little more income for themselves.
In any event, corporate fraud is bad for business, and needs to be addressed in a pro-active manner. To do this, a full assessment of the vulnerabilities of the business should be undertaken. Common types of corporate fraud include:
- Financial mismanagement
Business operations are fertile ground for fraud resulting from financial mismanagement. This may take the form of accounting anomalies, inflated invoices issued to real or fake companies with the employee receiving the payment instead of the business, or false or inflated expenses claims. This type of fraud is a particular risk for large businesses operating over multiple sites, as it can make it easier for employees or employers to manipulate small amounts of money on a regular basis, undetected.
- Bid fraud
The process of opening a tender process can give rise to bid rigging – a fraudulent activity that involves a business offering a contract that has already been awarded to another party. This can, in turn, give rise to a cover bidding situation in which businesses bidding for a contract collude to ensure that a specific party wins the bid.
- Fraud within the supply chain
The supply chain of a business is key to success, but also relies on the integrity of those third parties. This makes it a high risk area of vulnerability, because any fraudulent activities occurring inside the supply chain has the potential to disrupt the operation of the entire chain – including the business in question. Moreover, the access required for the supply chain means that it is possible for fraudulent activity to be committed against the business directly. This means that, in reality, the business is only as secure as the weakest link in the supply chain.
- Personnel management
Corporate fraud includes those instances of ‘time theft,’ where an employee takes time off, claiming to be unwell, but is actually in good health, or where an employee manipulates a flexible time system. It also includes manipulations of standard working time – for example, time spent using the business computer system for personal tasks, rather than work. In addition, misrepresentations at the time of applying for a job would also be categorised as personnel management fraud.
- Intellectual Property fraud
Fraud surrounding Intellectual Property generally takes the form of counterfeit goods. These do not bear the burden of meeting quality and safety standards, which means they are cheap to produce, but pose significant risks to customers. This consequently risks the long term reputation of the business. Piracy of material from creative industries, such as media and fashion, also constitutes Intellectual Property fraud, and instances can include the unlicensed broadcast of music or film.
Corporate fraud prevention strategies
While every business is different, and operational structure and processes vary between industries, there are fundamental prevention strategies that can be implemented as standard, to minimise the risk posed by fraudulent activity.
- Conduct regular audits
It is not possible to spot anomalies or erroneous activities within a business without first having a comprehensive, baseline understanding of what ‘normal’ looks like. By conducting thorough and regular audits, senior management can build a detailed picture, over time, of what is happening inside financial and administrative processes. When these audits include data analytics regarding accounting, employee time management, contract performance, and manufacturing output, granular examination can enable a pro-active approach to any potentially fraudulent issues that arise.
- Protect digital systems and platforms
In modern times, it is not enough to simply install anti-virus software on a business computer system. Cyber criminals are experts in the most up-to-date methods of hacking into digital networks, so it is imperative that businesses remain one step ahead. That means implementing a robust firewall and instituting strict corporate policies regarding password management. Adherence to best practice would involve training staff in the use of software security features, and would require employees to change passwords at regular intervals. Comprehensive file back-ups are also a vital part of protecting digital systems and platforms, and back-ups should always be stored securely, off-site. This ensures business continuity in the event of the main location being out of commission for any period of time.
- Implement premises security and effective fleet management
The physical security of a business location is just as important as the digital security measures implemented to protect data. In addition to camera and alarm systems, a coded key-card network throughout the premises can keep the commercial space secure, while also creating an auditable log of access. Fleet management is also crucial, to ensure that company vehicles are not being misused. Fraudulent use of a company vehicle could be as simple as an employee using it for a personal trip, or as complex as an employee colluding with a third party to commit wider fraud or theft.
- Conduct background checks
All business relationships – whether they are with employees, suppliers, or other third parties – require due diligence in order to protect the interests of the organisation. This is a fundamental part of corporate risk management and can significantly reduce costs related to legal proceedings and fraud recovery. By conducting legal and ethical background checks on those with whom a business relationship is pending, companies can ensure that all possible protection measures have been deployed.
How Private Investigators can help
When the general public think of Private Investigators, the image conjured is often that of the traditional ‘gumshoe,’ quietly tracking down cheating spouses. While this remains a legitimate and important line of enquiry, the workload of the modern Private Investigator is considerably more varied. In today’s world, Private Investigators can be called upon by corporate entities to help protect against fraud, as well as to help uncover misdeeds already in progress.
Professional and reputable Private Investigation firms utilise cutting edge technology, which can be deployed as an effective counter-measure in defence against cyber-crime. Once the business has granted access to digital systems and networks, Private Investigation operatives can implement strategies including electronic surveillance of computer activity. This can provide enhanced digital security through the monitoring of employee actions within the network and on individual devices. It can prove invaluable in cases where staff members are engaging in fraudulent electronic communications or ‘time theft’ and, if announced to staff, can also act as a deterrent. In addition, this technology can disable or block any malicious, covert surveillance software that has already been installed within the system.
Electronic surveillance strategies can also be deployed as part of the fleet management of a business. Using GPS vehicle tracking, a Private Investigation firm can provide constant monitoring of the use of company-owned vehicles. This can uncover instances of unauthorised personal use, moonlighting, or collusion with third parties or competitors. The advanced technology delivers detailed reports of movement and time, in a format that ensures the data is actionable, if necessary.
As security experts, Private Investigators can advise on and enhance security throughout the business premises, providing site monitoring and comprehensive records of movement and access. This can form a fundamental aspect of protection against corporate fraud, boosting accountability and building irrefutable evidence as necessary. There is significant value in engaging the expertise of an outside agency with respect to the physical security of a business, as a fresh and unrelated perspective can both spot otherwise unnoticed vulnerabilities, and also provide vital impartiality when suspicions arise about in-house personnel.
Background checks are one of the most straightforward yet comprehensive and effective ways to protect a business against corporate fraud, and Private Investigators are the most qualified personnel to undertake this task. By applying a wealth of experience and finely honed investigative techniques to public records searches, professional investigation teams can provide vital information about prospective employees, suppliers and other third parties – all of whom would potentially be in a position to significantly impact the commercial interests of the business. This stringent due diligence is best practice in terms of risk management and can greatly reduce costs in the long term.
OpSec Solutions is a highly regarded Private Investigation firm with years of experience helping businesses prevent corporate fraud. Drawing impeccably trained personnel from police, military and corporate backgrounds, OpSec Solutions strives to advance in step with technology, which means that the team is always able to anticipate developments in the strategies of cyber-criminals. Understanding that a pro-active approach is the best form of defence, OpSec Solutions can help businesses combine prevention policies with the early identification of fraud in progress – protecting the integrity of the organisation as a whole.
Contact OpSec Solutions today to discuss how to protect your business from corporate fraud.