Types of Business Fraud: Evaluate your anti-fraud approach lately?

The types of business fraud are as varied and unique as the approaches used to commit it. I’m often saying that “fraud is global.” People often think that specifically refers to the international nature of the crime. While it’s certainly “global” in that sense (frauds are committed all over the world), it’s also “global” in terms of the variety of business frauds being committed and the holistic approaches needed to combat it, no matter the jurisdiction. This begs the question: When was the last time you evaluated your enterprise fraud risk management approach?

Fraud is Global

I made the “fraud is global” comment in an interview the other day and that started me thinking about the various verticals and the amounts of fraud committed within those verticals. I suppose it’s possible that there’s a vertical that doesn’t have some form of fraud, but throughout my career I’ve yet to find one that’s immune to it.

Where there’s money to be made, benefits to be received, or a competitive edge to be gained… there’s always fraud. And for anyone to deny it exists… is extremely shortsighted. Factually, not only is fraud committed within most verticals but oftentimes there is more than one variation of fraud being committed.

Types of Business Fraud

Supporting my point about fraud being “global” and the contention that fraud is committed across most (if not all) industry verticals, one does not have to look very far. Case in point, the other day I conducted a random, but non-scientific, small test simply searching the phrase “fraud.” The first two pages that came up during my search found news stories covering 12 different types of business fraud:  

Benefits fraud

Click Fraud

Contractor Fraud

Credit Card Fraud

Embezzlement

Food Stamp Fraud

Government Program Fraud

ID Theft (for phony Tax Returns)

Insider Trading

Insurance Fraud (Arson)

Insurance Fraud (Medicare by Doctor)

Ponzi Scheme (Real Estate)

Real Estate Agent Fraud

Real Estate Escrow Officer Fraud

Real Estate – Loan Officer Fraud

During the search, a couple interesting things were quickly evident. First, it didn’t take long to prove the comment that “fraud is global” and covers many verticals. But perhaps more immediately evident was the observation that there are many different types of business fraud committed inside individual verticals. This was highlighted with three stories involving the real estate industry alone and fraud suspects representing different positions within the real estate process. Lastly, what caught my eye was the fact that there was even a fraud charge in one case for a suspect’s filing a false fraud report alleging that he was the victim of fraud, when in fact he was not!

The takeaway for clients is that the (global) variety of fraud types creates significant exposure for business operations. While “fraud is global,” so are the varieties of enterprise risk management, fraud prevention, detection, mitigation and investigation techniques needed to combat the varieties of frauds being committed against a vertical’s products and services.

Holistically Combating All Types of Business Fraud

Simply put, when it comes to an anti-fraud approach, it’s definitely not “one size fits all.” While single focused anti-fraud efforts might be effective in preventing and detecting one type of fraud, they are definitely ineffective in combating the global nature of the problem.

This fact requires companies to think more holistically about their anti-fraud programs. A holistic, enterprise wide, corporate fraud risk management approach requires the deployment of employee’s with diverse skill sets and comprehensive policies, processes, procedures, tools and technologies.

The individual enterprise fraud risk management plan must be comprehensive, fluid and reviewed on a “regular basis” and the timing of program review is often something we’re writing about in articles we publish and working on with clients.

While the frequency of the program review depends on many business factors (type of business, risk appetite, profile of customers, geographic locations business conducted in, fraud losses, major fraud events, new product roll out, audit and risk control schedules, regulatory input etc.,) one thing is certain, “regular enterprise anti-fraud risk management review” definitely does not mean put a plan in place and forget about it. Especially, with the constantly changing, global nature of fraud.