Fraud prevention is a topic that constantly provokes debate and disagreement. Stories about the huge amounts of cash being cheated and conned out of lenders has recently dominated the business pages of our favourite national newspapers and left compliance officers reaching yet again for their packets of extra strong ibuprofen.
The last few weeks have been no exception, with researchers at accountancy giant KPMG pouring more petrol on to an already blazing fire.
It has calculated that the number of UK mortgage fraud cases appearing in front of crown courts in England and Wales almost quadrupled in the first six months of 2010 – reaching an unwelcome 22-year high.
More than £1bn has been swallowed up in the mortgage fraud black hole, according to KPMG’s Fraud Barometer. It also reveals that there were 166 cases of insider mortgage fraud in the first half of the year with a collective value of £608.5m.
This figure dwarfs the £391m stolen by career criminals, who accounted for just 56 cases.
KPMG confirmed the long-held view that a manager is a greater threat to a company than an employee, and almost as big a risk as a professional crook, by citing 47 specific cases of fraud committed by a line manager compared with 32 involving a member of staff.
The report states that the average manager who resorted to theft exposed their business to a loss of £4m, whereas the typical employee trousered £1m.
By comparison, the criminal fraternity committed 55 frauds with a collective value in excess of £390m. But is this shocking news? On one level, particularly among people who don’t work in the fraud prevention space, it is.
After all, £1bn down the plughole is a shocking amount by any stretch of the imagination, as are the number of people who have chosen to defecate on their own doorstep. For someone like me, who spends most of my time trying to create fraud prevention solutions, the news isn’t that surprising.
The reality is the fraud community has known this particular issue has had the potential to become a major Achilles heel for a long time and I believe the true level of mortgage fraud in the UK now accounts for far in excess of £1bn.
Unfortunately lenders have historically paid lip service to the mortgage fraud problem. After all, until fairly recently the financial markets have been buoyant and there has been more than enough money to go around.
This has meant there hasn’t really been a need to spend money and increasingly valuable management time acknowledging and confronting the issue.
Now, of course, we’re in the midst of the worst economic meltdown in living memory and every penny is precious. This means a new climate is prevailing, one where excuses for allowing fraud and improper conduct to exist won’t be tolerated and written off as a miscalculation or accounting mistake.
I know from the conversations I have with many people in the industry that lenders are now treating this issue as a major priority. And that’s welcome news.
But now it’s on the radar, how do we successfully tackle the problem? After all, just because it’s a priority doesn’t necessarily mean it will be sorted out.
Rather than investing small fortunes in technology and overhauling departments with all the upheaval that causes, I’d like to see lenders adopt a common sense approach to managing their staff, which I believe would have a major impact on their overall exposure to fraud.
If you get your processes and procedures right with your employees, then many of your headaches disappear relatively quickly, leaving the compliance and internal audit professionals to deal with the meaty issues.
So I believe it’s time for lenders to:
- Put in place clear and consistent internal procedures that help staff understand what they’re doing and what is expected of them.
- Create a suite of online tools that ensure staff adhere to the rules and alerts management to breaches at an early stage.
- Use technology to identify any transactions that don’t fit normal trading and lending patterns.
- Undertake comprehensive reference and qualification checking before new employees start work.
- Regularly review internal fraud management procedures every quarter.
- Use internal training programs to educate staff, so they are aware of what internal fraud looks like and the damage it does to a corporate reputation.
- Encourage whistle blowing – emphasising there will be absolute anonymity for anyone who identifies potential wrongdoing.
As you can see, all this is commonsense yet it never ceases to amaze me how many businesses don’t check their people out thoroughly before they walk through the front door and are assigned confidential information and sensitive projects.
My hope is that the modern-day fraud professional and their boardroom superiors will stay vigilant in the face of new threats from outside and within.
We have all got some big challenges ahead, which we are more than capable of meeting. But let’s face it – we will never eliminate fraud totally. It will always be around in some shape or form.
If we accept this, then our goal has to be to minimise any potential exposure – which is the opposite of what has been happening in recent months.
KPMG says companies that have taken their fraud risk management responsibilities seriously before the downturn should now be emerging stronger because of it, giving them a distinct competitive advantage over their rivals.
I agree. So I urge any organisations that are serious about tackling their own fraud problem to move quickly. If they do, they’ll be pleasantly surprised at the range of solutions that are available and the speed at which their headaches can disappear.