You Can Pay Now or Pay More Later

Pay Now or Pay LaterYou Can Pay Now Or Pay MORE Later – So, What’s it Gonna Be?

Fraud detection, prevention and investigation are all components of a successful fraud risk management (FRM) effort. However, let’s get real… there’s no such thing as a “free lunch” and FRM programs definitely aren’t free either.

Like your car’s engine, which is definitely going to go out at some point, “fraud happens” and it won’t ever be convenient when it does. This is where the memorable “you can pay us now or pay us later” oil filter ads came from.

Likening this to your company’s FRM efforts, you can either invest in preventative measures now, or invest significantly more down the road when the stockholders are upset, per share prices have declined, lawsuits have been filed and government regulators are breathing down your neck. So, what’s it gonna be?

Pre Intervention Lessens the Impact

While nothing’s foolproof (not even FRM programs), generally speaking “an ounce of prevention is worth a pound of cure.” One thing’s certain, taking no steps to mitigate fraud risk (doing nothing) isn’t an option. Unless of course, you’ve got masochistic tendencies and relish the excruciating corporate pain associated with: legal liability, negative publicity, shareholder lawsuits, a lack of investor confidence and a regular lunch date with regulators etc.

Taking proactive FRM steps, in advance of a major fraud event, also has another positive impact as well. Not only does it lessen the odds your company will get attacked but it improves the odds that another company with less formidable defenses will.

While I’d never wish that on anyone, not even my worst business enemies, it’s the reality of the deal. We’ve talked about this issue numerous times before: fraud gravitates to the point of least resistance. If, as a result of your company’s efforts the bad actors gravitate towards other industry players, who haven’t yet got the “you can pay now or you can pay MORE later” FRM prevention message, then so be it.

So, the fact is, pre intervention has the added benefit of suggesting that you’re not an easy target and maybe the “bang isn’t there for the bad guys buck!” The message you’re sending…”Go elsewhere!”

Quantifying Deterrence

Two of the most often asked questions coming from the C-Suite are “what’s our fraud exposure?” and “what will it cost?” The answer to both is a qualified “it depends.” Cost is relative and there are so many variables in the FRM spend equation.

However, the spend question is more adequately analogized to the purchase of a new car. Do you want a fine luxury motor car or a cheap subcompact? Do you want a motor that purrs or one that squeaks while the hamsters are going around the wheel? In either case you get what you pay for.

While it’s true that you generally get what you pay for purchase price, alone, isn’t a guarantee that you’re immune from fraud…only that you’re lessening the odds of victimization when you have a fraud prevention vehicle with more highly engineered “bells and whistles.”

The other option is to pass on commercially available, off the shelf, products altogether and build your own fraud prevention tools. If the personnel’s available in-house, and there’s the resources, funding and time necessary to take on such a development task we’ve seen this work as well. However, this is a bit too resource intensive for most companies. So, instead they just opt to walk into the dealership and pick up something off the lot.

Generally speaking, the costs associated with implementation of an FRM deterrence program are easier to quantify than the “what’s our risk” question. However, there are ways to quantify risk and the best bet is to start with fraud risk assessment to identify potential exposure. Industry losses associated with other companies major fraud events, experiential data, legal costs, brand damage and negative PR are also good indicators of the risk barometer.

Fraud Management as Insurance

Risk is generally thought of as the probability that loss will occur. Unless you’ve been living in a cave for the last twenty years, devoid of new coverage, you know that competing in the global business marketplace has become a very volatile and risky proposition. Fraud losses are a big part of that equation.

The fraud risk not only comes from highly organized crime rings and nefarious characters abroad (whose sole purpose in life is to separate your company from its information and revenue), but from your competitors who are interested in gaining intelligence about your business operations so that they can cross the finish line first.

By investing in anti-fraud efforts now, in advance of getting clobbered with a big hammer, you’re essentially buying an insurance policy to mitigate risk and prevent a catastrophic fraud event from occurring before it does.

Of course, you could always do nothing to prevent fraud and simply try to purchase an actual insurance policy to hedge your bets against potential risks but the insurance company’s underwriters are likely to think you pose too great of a risk to insure because you’ve taken no preventative action to mitigate fraud. This makes your company a much larger target and neither underwriters nor Vegas likes those odds.

Fraud prevention: so what’s it gonna be? You can pay now…or pay (significantly more) later!

Those are our insights. What are yours?

For more information on how we can help your businesses prevent risk, reduce major fraud losses and improve operational ROI, contact us to schedule an initial consultation. No obligations…just unique insights from an industry leader.