Mitigating Fraud and Protecting Profit on The Frontline of Business

How would your organisation feel about losing five percent of its annual revenue to fraud? Hardly loose change, isn’t it? In fact, the total losses reported in the Association of Certified Fraud Examiners (ACFE) 2016 Global Fraud Study exceed $6.3 billion, with an average loss per case of $2.7 million.

It’s easy to turn a blind eye to this. After all, most organisations have adequate debt provisioning processes in place. A capital sum is frequently allocated to fraudulent loss, for example, often cases of fraud are written off as instances of insolvency. Turn the problem on its head though: How would your organisation like to increase its revenues by five percent annually? Now that’s something few would turn away from.

Many still do though. In today’s digital world, where business operates in near real-time, decisions have to be taken on the fly. Sometimes in seconds. Many organisations simply don’t have the time to perform watertight checks. Credit underwriters, for example, are under significant pressure to turn around credit applications quickly, while maintaining compliance checks.

Tackling fraud can have a real impact on the bottom line—whether that fraud is committed through fictitious or exaggerated financial statements, identity theft, fabricated businesses, or other types of fraudulent activity. Stop it in its tracks and you don’t just halt revenue leakage, you grow revenues. And as we all know, it’s far more effective to prevent fraud occurring in the first place, than it is to commit headcount to recovering money from an investigation afterwards. So how can organisations ensure the business they transact is good business?

Mitigate fraud, protect profit, and reduce business risk

The answer lies to some extent in effective data sharing between organisations – particularly amongst industry peers. Data sharing, if conducted in a secure and compliant way, enables organisations to mitigate fraud, protect profit, and reduce business risk. In other words, talk is good in combating industry fraud. A number of years ago, data sharing amongst industry competitors was unheard of. Competition concerns almost always being the main obstacle.

‘Hold on a second here’, you’re thinking! Organisations can’t simply share confidential information about other businesses at will. There are strict data privacy laws amongst other regulations which govern how private information can be shared and used. Many organisations might also be concerned they are breaching competition laws, or giving away sensitive information to their competitors.

That does not seem to be the case however. Information is shared between organisations all over the world on a daily basis for all sorts of different purposes not just for fraud prevention. Although sharing information specifically for fraud prevention purposes requires more governance, it hasn’t stopped businesses using this as a method to help mitigate the risk of fraud. 

Even the regulators and UK government have started to take a more favourable approach to the sharing of data, having issued a Code of Practice on this subject (ICO Data Sharing Code of Practice May 2011). The Home Office also issued the Data Sharing for the Prevention of Fraud Code of Practice in March 2015 which specifically covers data sharing between Public Authorities and Specified Anti-Fraud Organisations (SAFOs).  

An information sharing service—such as Dun & Bradstreet’s Critical Intelligence solution—can be a vital tool in the fight against fraud and other financial crimes. Indeed, Dun & Bradstreet has been recognised for its part in fraud prevention and is designated as a SAFO by the Home Office under the Serious Crime Act 2007, which allows Dun and Bradstreet to participate in this data sharing. Just nine organisations share this status in the UK.

Data sharing proven to combat fraud

This sharing of critical intelligence is having a real impact on fraudulent businesses too. The UK Insolvency Service, for example, recently ordered a group of three London companies, Genz Holdings Ltd., Gafo Me UK Ltd., and Greens LD Ltd., (reportedly having combined worldwide assets of over $550 million), into liquidation. The investigation found that each company had filed false accounts at Companies House.

The High Court also ordered into liquidation a web of phantom ‘construction and civil engineering’ companies with reported combined sales of over $62 million, but run solely as instruments of fraud to obtain credit by filing false accounts and other false information. This again followed an investigation by the Insolvency Service.

Make no mistake, information sharing matters. Just how critical is summed up in another finding from the ACFE’s study: Organisations that had specific anti-fraud controls in place experience up to 54 percent lower instances of fraud and are able to detect fraud up to 50% more quickly.

Given today’s lightning speed of business, the rising propensity for fraud, and the need to share data in a safe, compliant manner, a critical intelligence solution not only mitigates against fraud, it protects profit too.

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