5 reasons why companies struggle to combat fraud

Companies lose billions every year. Some are shocked that it happened to them. Others, have a line item in their financial plan (Yes, you read that correctly. They plan to lose money to fraud.) Far too many companies are forced to close their doors because of it…

So, why is it so hard for companies to combat fraud? Here are five reasons that I have uncovered during my career:

  1. “You work here as well?” – Fraud professionals often talk about their frustration with “silos” that result when departments involved with preventing and detecting fraud don’t talk to each other. In fact, a significant portion of my career has been spent helping break down the silos within organizations. The fraudster – both employee and third-party – is able to exploit the lack of communication between departments for their own benefit. Large companies are particularly guilty. It is not unusual for two or more departments to be actively investigating the same employee! No one has the complete picture of the fraud, yet each department continues to investigate the situation independently while the losses mount.
  2. “I don’t want to think about it” – Fraud can be overwhelming, especially for senior executives with an already heavy workload. It is easier not to think about what fraud may be doing to the company’s bottom line. Unfortunately, ignoring the problem will never solve it. In fact, when losses do result (yes, fraud happens) they are often gigantic.
  3. “We don’t have the money” – This reason is certainly understandable, especially when you consider the dire state of the global economy. It is probably the biggest hurdle that our firm has to overcome when talking with companies of all sizes. Unless the company has experienced a significant fraud within the last 12 months, there is resistance to any investment in fraud prevention or detection services. Until the company sees a spike in fraudulent activity, why should they worry? Well, unfortunately, you can’t pick a date and time when fraud will happen. It has an uncanny knack of taking place when you can least afford it. The costs to fix the problem are normally far higher than the prevention that was needed in the first place.
  4. “Bring it. We’ve got it covered” – From time to time, I run across an exceptionally high performing fraud department. They have the right mix of people, processes and technology to fight fraud. The company’s executives support their efforts and they routinely hire the “best of the best” to join their organization. They have fraud – internal and external – under control. Well, almost. What worked last month, or last year, will not automatically work today. Combating fraud requires a “continuous improvement mindset”. Fraud evolves, so too must the fraud department. Complacency can eventually destroy even the best fraud department. The latest fraud intelligence can literally make the difference between success and failure. Trust me; I’ve seen it happen on more than one occasion.
  5. “They were just that good” – I have interviewed 100’s of people who have committed fraud. Many of the schemes that they perpetrated required tremendous vision, drive and determination to execute. Some of the most intelligent individuals that I have met were in fact accomplished fraudsters. The really smart fraudsters are often never caught. Every fraud investigator can cite at least one or two situations where the fraudster got away with it. Some fraudsters are just that good. If they don’t make a mistake, you have almost no chance of catching them.

This list is certainly not all inclusive. I’d love to hear from others as to why fraud is so difficult for companies to fight. Also, if you disagree with any of my observations, feel free to say so!

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About Paul McCormack
I have over 20 years of experience in corporate fraud and intellectual theft prevention, detection and investigation. Unlike many fraud experts, I have both industry and professional services experience. To date, I have conducted over 800 interrogations of fraud suspects including numerous senior corporate executives. As a freelance writer, I have written over 1,000 articles on a broad range of topics. My areas of expertise include: • Asset Misappropriation • Big Data • Bribery, Corruption, and Collusion • Check, Wire, ACH, and Credit Card Fraud • Consumer Fraud • Corporate Security • Cybersecurity • Data privacy (Europe, Brazil, Russia, India, and China) • Drug Trafficking • Embezzlement • Employee Fraud • Executive Protection • Fintech • Financial Statement Fraud • FCPA • Healthcare fraud • Identity Theft • Intellectual Property Theft • Internal Audit • Interrogation Tactics • Loss Prevention • Mobile Fraud • Money Laundering • Operational Excellence • Organized Crime • Payments Fraud • PCI Compliance • Retail Fraud • Risk Management • Terrorism and Counterterrorism • UK Bribery Act • Workplace Violence

10 Responses to 5 reasons why companies struggle to combat fraud

  1. Pingback: 5 motivi per cui le aziende faticano a combattere le frodi « Fraudologia

  2. Paul Kirkham says:

    I agree with your list of reasons of no action by large companies, they either adopt the ostrich head in the sand or believe the outlay of professional work is not balanced by the short term bottom line, the fact that fraud is like a cut and may be small but the constant drip of revenue is aided by cheap short cuts or worse no action.

  3. Trevor says:

    I typically never read email newsletters because they add so little value, but this is the exception. Great info – I definitely had a few take aways Paul!

  4. Pingback: Dishonor among thieves « Fraud Happens

  5. This was an awesome blog that would be very useful for small businesses to read. I really believe that if the small business community starts getting an understanding about what it takes to combat fraud they will be more adapt to fight and monitor it at the lower budget levels of their businesses.

  6. Pingback: 5 reasons why companies struggle to combat fraud « Fraud Happens « ecnbsolutions

  7. Pingback: The confession « Fraud Happens

  8. Future sibanda says:

    If organisations don’t ignore the contents of this newsletter, fraud will be reduced.

  9. Pingback: Punishing the white collar criminal « Fraud Happens

  10. Pingback: Don’t forget about fraud perpetrated by customers… « Fraud Happens

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