With fraud in the Midlands running at record levels, local businesses are being warned to get to grips with the risks or potentially face significant losses. Jonathan Lovell, head of forensic at KPMG in Birmingham, looks at the role technology is playing in the detection and prevention of fraudulent activity.
The threat of fraud is increasing rapidly in the Midlands. In KPMG’s Fraud Barometer, fraud in the Midlands reached £380 million in 2008 – the highest value recorded since it began 21 years ago.
History teaches us that fraud increases in times of economic hardship, so this threat will only grow in the current environment. It is therefore vital that local businesses exercise heightened vigilance in this area.
Businesses also need to appreciate that the more professional fraudsters can be very sophisticated in deploying new techniques to beat existing controls. As a result, fraud prevention measures that may have been adequate in the past may no longer be sufficient in the future.
When you add to this the potential threat of cutbacks on administration and management spending, there is the possibility of new gaps opening up in the systems and controls that may quickly be exploited by fraudsters.
With this in mind, it is important that businesses review the fraud risks they face and the adequacy of existing fraud risk management procedures.
By reviewing their high risk and key operations, having effective reporting channels and deploying appropriate prevention and detection controls, they give themselves a better chance.
One key area is the use of technology in identifying and guarding against fraud, misuse and abuse. The signs of this activity and the key to its detection often reside within the business itself – hidden in the data generated by its day-to-day operations. Advanced analytical tools and techniques can unlock the value hidden within the data and identify the complex patterns and subtle indicators of suspicious and improper activity.
In recent years the techniques employed have developed significantly. Experienced fraud investigators, working alongside technology professionals, have built libraries of hundreds of rules that test for the red flags associated with known fraud typologies. “By using sophisticated scoring techniques, these rules can be used to identify and prioritise anomalous transactions across the main business processes in many different industries.
The technology is so advanced it can help detect emerging fraud schemes and previously unknown areas of waste and abuse. By using a model-based approach anomalous transactions can be identified by reference to deviations from ‘normal’ behaviour, detecting and preventing fraud even before the red flag indicators have been created.
KPMG Forensic’s data analytics team brings together analytics specialists, industry expertise and a powerful combination of bespoke analytic techniques linked with advanced It solutions.
As a result, the firm can support and assist clients by uncovering the complex patterns and subtle indicators of suspicious activity, to take preventive action and reduce fraudulent behaviour.
The use of data analytical techniques will not eradicate the threat of fraud entirely, but they are effective in minimising avoidable losses. They could prove crucial in helping businesses avoid costly setbacks in managing a way through these challenging economic times.