The Fraud Enigma: Good or Bad?

Fraud Enigma

The Fraud Enigma

While I was in grad school one of my classmates uttered the memorable phrase “fraud is fun.” Now, at the time it was apparent to those of us in the room that he didn’t mean fraud is funny as in “that’s a real side-splitting knee slapper.”

His statement was clearly a reference to the constantly changing nature of fraud and the unique challenges it poses, on a daily basis, for industry professionals battling the piratical scourge.

Let’s face it, fraud is bad. Individuals, corporations and governments are losing data, information and revenue to anonymous, faceless people often sitting behind a keyboard half a world away. While the massive damage fraud does to the global economy is indisputable, there are darker, more sinister effects which are not often realized by the average citizen.

On the other hand, despite the damage that fraud causes, in an attempt to accurately paint both sides of the picture, this blog identifies that there is also good that also comes from fraud and that’s the fraud enigma.

Fraud Supports Terrorism

Fraud is bad because the money has been directly linked to a variety of terrorist organizations that use the revenue for operational purposes and to promote their cause. The Financial Action Task Force (FATF) was talking about this connection six years ago in their report on Terrorist Financing:

“Terrorist organizations require significant funds to create and maintain an infrastructure of organizational support, to sustain an ideology of terrorism through propaganda, and to finance the ostensibly legitimate activities needed to provide a veil of legitimacy for terrorist organizations.”

“Terrorists have shown adaptability and opportunism in meeting their funding requirements. Terrorists also derive funding from a variety of criminal activities ranging in scale and sophistication from low-level crime to organized fraud.”

Six years later, fraud is still a viable funding tool for terrorist organizations despite our efforts to try to prevent the flow of monetary support to these groups.

So, while some people simply view fraud as a paper crime, in the big picture it’s much, much more than that. Fraud puts money in people’s hands for purposes we’d rather not support, damages property and endangers lives.

Fraud Creates Jobs

On the other hand, fraud is good. That’s the fraud enigma. Crazy talk, you say? Well, maybe not.

The bad actors committing fraud and financial crimes create jobs. Jobs stimulate the economy and put people to work. Despite the losses, someone has to prevent, detect, analyze, investigate, enforce, regulate and prosecute fraudulent activity perpetrated by these nefarious types.

Whenever anyone inquires as to the viability of fraud as a profession, I always point to the global landscape and the significant increases in this type of crime. That’s job security, my friend, unless of course you happen to work for a bank in Florida that decides to outsource its fraud call center during the crime’s heyday.

However, to the point about fraud job security, in that example, the fraud didn’t go away just the bank’s business unit.

Beyond that, fraud is an interesting occupation which has presented me with some very unique personal and professional opportunities that I never would have been afforded in a number of other occupations.

Through the fraud profession, I’ve been places most people will never go, interacted with a constantly changing variety of individuals and had experiences I never would have had were it not for being a fraud professional. The work is challenging, it changes daily, it’s interesting and the rewards are significant.

Everyone’s a Specialist

Another part of the fraud enigma is that entry to the profession is not singularly focused given the crimes diversity. The fraud profession has become very specialized and there’s a perfect analogy to the medical industry where there are different types of specialists (cardiologists, podiatrists, endocrinologist, internal medicine etc.) to treat whatever ails you.

Likewise, the fraud industry is equally as specialized. Name an industry and there’s a specialist who handles fraud in that specific vertical. You don’t see a heart doctor when you have a foot problem and likewise you don’t see a telecom fraud specialist when you have a money laundering problem in the financial services industry.

In the perfect utopian society we’d live in a world where there was no fraud or financial crime. Unfortunately, the world isn’t perfect but if it was all of the fraud professionals would be standing in the unemployment line looking for something else to do. The fraud enigma.

Fraud Training

All this fraud has created a market for continuing professional development and training for industry professionals to keep up with the newest scams and schemes. The fraud enigma. Don’t need any training you say? Spent years in law enforcement and there’s nothing new to learn? That sentiment couldn’t be farther from the truth.

The good news for those in the fraud training space is that there’s nothing about fraud which is stagnant. The fraud enigma is that fraud is fluid and changes daily. This creates a need for niche training to ensure public and private sector staffs have the professional skills necessary to combat the latest fraud challenges.

But wait, there’s more to the fraud enigma. Training isn’t just limited to the public and private sector. Academic institutions have caught the craze in reaction to the global fraud landscape.

The demand for new curriculum, which addresses growing student interest in fraud and financial crime, is increasing. The training prepares individuals for the jobs they’re already in or seeking in the fraud space.

Fraud Associations

Industry groups have sprung up representing every conceivable type of fraud specialty there is. Corresponding designations and certifications are now available for individuals in the industry and those who want to get into the industry. Self improvement – part of the fraud enigma.

Associations help build connectivity, professional networks and the exchange of knowledge amongst professionals. Networks are not only valuable for getting into the fraud profession but help those in the industry fight fraud through their connections.

That’s not only good, it’s very good and another significant part of the fraud enigma.

Fraud Requires Internal Control Improvements

The very fact that fraud exists, and poses real danger to government’s, businesses and individuals forces change. Change must be made to prevent victimization yet some entities resist making change absent a clear and compelling reason to do so.

While victimization is bad, change to strengthen deficient internal controls and risky personal behavior is good and that’s a compelling part of the fraud enigma.

For some companies, the mere possibility they could be victimized by fraud is enough to warrant strengthening internal controls and risk mitigation procedures. However, others have to be hit over the head with a really big hammer (fraud losses, reputational damage, lawsuits, lack of investor confidence, regulatory fines, penalties, sanctions etc.) to force operational change.

This is but one more reason why there’s a fraud enigma and fraud is good. The analogy that immediately comes to mind is the effect on the forest post wildfire. While forest fires are certainly devastating in the short-term,

Forest fires help balance the ecosystem and promote growth and diversity. … the long-term results on the ecosystem are very good.” (A forest fire enigma)

There’s symbolism here to the fraud world where short-term fraud damage ultimately promotes long-term operational growth. This is not only true for the victimized entity but the entire business community as companies strive to make the adjustments necessary to financially survive and be profitable. Out of fraud, comes real growth.

Fraud Technology

It’s been said that “necessity is the mother of all invention” and historically that’s been true in our society. Some of the greatest inventions of our time have been created by need: airplanes, electricity, microwave ovens, automobiles, flush toilets, smartphones, Internet, computers etc.,). The list goes on and on.

Just as art imitates life, technological development mirrors the global crime climate and the massive amount of fraud, risk and financial crime being committed today.

Technology companies have made significant advances in the creation of cutting edge tools in the: analytics, anti-virus, case management, detection, ethics, governance, risk and compliance (GRC), identity fraud detection, investigation, prevention, social media, training and transaction monitoring spaces.

Simply put: no fraud = no technological innovation.

The Bottom Line

Fraud is bad, fraud is good…hence the reason for writing this blog. There’s a fraud enigma. Don’t get me wrong, nothing about this blog is unsympathetic to victims of the crime as it does real damage.

The reality, however, is that your point of view on the fraud enigma, and whether fraud is good or bad, probably depends on what you do and where you’re sitting in this equation.

Those are our insights. What are yours?