In response to growing concern among its customer base regarding an urgent need to ensure that fraud risks are immediately detected and mitigated, ACL, the company that is transforming audit and risk management, has identified the top three categories of fraud to watch out for as part of robust, data-driven fraud risk management in 2014.
1. Fraud designed to mask bribery: As regulatory enforcement of bribery and corruption laws increases worldwide, internal controls are bound to tighten, leading to heightened efforts among dishonest employees to hide qualified bribe activity through elaborate schemes, such as invoicing kickbacks, falsified vendors, and bid rigging. ACL considers FCPA compliance to be a key area of concentration and it’s critical that this realm of exposure is taken into account when executing a 2014 risk assessment and controls plan.
ACL guidance: The impact of tighter bribery controls should be taken into account when assessing an organization’s third-party vendor management processes. This can be done through use of trending to identify unusual activity, such as large payments to consultants that coincide with contractual agreements.
2. Inflated performance in the financial services sector: As performance in financial services continues to strengthen, the level of fraudulent activity will follow suit. Novel technologies and larger data volumes provide a new toolset, enabling financial professionals to conduct activities in gray areas of fraud as a way of deceptively driving performance.
ACL guidance: Review the control framework for management of banking or securities risk and consider the implementation of analytics that evaluate unusual patterns in activity.
3. Asset and revenue deception within financial statements: As M&A activity becomes increasingly frothy, fraud among companies in search of a buyer or those looking to undertake other types of equity events will be on the rise. Revenue and asset pumping through timing schemes, channel stuffing, and other, similar manipulative methods will be enacted to take advantage of unusually favorable market conditions.
ACL guidance: Conduct a complete risk assessment of all material asset and revenue accounts by profiling transactions and identifying indicators of potentially suspicious behavior, which should lead to detailed reviews of suspicious accounts that are identified.
“The U.S. Justice Department has recently placed a strong focus on the actions of companies doing business in countries that are at high risk for corruption, causing this to be number one on our list,” said Ross Paul, VP of Go to Market & IT at ACL. “We expect to see FCPA fines breaking record amounts this year, with large tech companies settling penalties in excess of $100 million.”
In pointing out the top categories of fraud that are likely to be prevalent throughout the year, ACL aims to assist customers in narrowing the focus, so that resources can be applied where the need is greatest.
“In our work with more than 14,000 companies, including 89% of the Fortune 500 and hundreds of government entities, we are always counseling customers on how to prevent losses tied to fraud, but we pay special attention to new vulnerabilities and risks that are on the rise,” said Aaron Werth, Director of Consulting Services at ACL. “Regardless of whether a company is privately held or publicly traded, establishing and maintaining a cutting-edge, data-driven risk monitoring system for fraud falls within best practices.”
(Source: Global Banking and Finance Review)