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Almost half of small business frauds are enabled by a lack of internal controls, a recent study has found. (Photo by Gorodenkoff)

Innovation | Technology

Organizations lacking in anti-fraud controls, data-monitoring and analysis, says survey

Occupational fraud costing Canadian businesses upwards of US$200K

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A 2018 survey conducted by the Association of Certified Fraud Examiners reveals that occupational fraud alone costs a typical organization an estimated 5 per cent of its annual revenues, and some of the schemes go on for years. Reported cases in Canada have a median value of US$200,000 with small businesses (fewer than 100 employees) losing almost twice as much per scheme as larger enterprises. Almost half of those small business frauds are enabled by a lack of internal controls.

For organizations that do have specific anti-fraud controls in place, losses are 12-56 per cent lower, and frauds are detected up to 50 per cent more quickly. Among the most effective measures is proactive data monitoring/analysis. Despite this, only 37 per cent of organizations have employed it.

By using data analytics, companies can gain visibility into patterns of activity that suggest fraud. The software looks at things including associations among customers and accounts to uncover hidden relationships that bear closer examination.

For example, analytics industry leader SAS, whose fraud detection software combines traditional analytics with artificial intelligence and machine learning, offers SAS for Procurement Integrity, which uncovers behaviour such as questionable employee spending habits, split purchase orders used to sneak around dollar thresholds, fictitious vendors, and suspicious employee-vendor interactions. Says IDC analyst Mickey North Rizza in an IDC Link research note: “Procurement has always been a prime area for fraud, with little protection other than exceptional controls by internal audit. SAS for Procurement Integrity is a product that will enhance business value by helping thwart fraudulent procurement and supplier activities.”

In 2017, IDC research indicated that fraud analysis and investigation was one of the top five AI use cases, with 9 per cent of the US$12.5 billion overall worldwide spend. The company noted that heavily regulated markets such as banking and securities investment are ahead of the curve, driving growth as they seek to meet increasingly stringent compliance requirements.