Countering fraud for competitive advantage : the professional approach to reducing the last great hidden cost

Substantially reduce the largely hidden cost of fraud, and reap a new competitive advantage. As the title suggests, Countering Fraud for Competitive Advantage presents a compelling business case for investing in anti-fraud measures to counter financial crime. It looks at the ways of reaping a new competitive advantage by substantially reducing the hidden cost of fraud. Aimed at a wide business community and based on solid research, it is the only book to put forward an evidence-based model for combating corporate fraud and financial crime. Despite its increase and capture of the news headlines, corporate fraud is largely ignored by most organizations. Fraud is responsible for losses of up to nine percent of revenues—sometimes more. Yet, most organizations don't believe they have a problem and don't always measure fraud losses. This highlights an area for capturing a competitive advantage—with the right counter-fraud strategy, massive losses due to the cost of fraud can be reduced for a fraction of the return. Advocates a new model for tackling fraud and illustrates theories with best practice examples from around the world The authors have close links with the Counter Fraud Professional Accreditation Board: Jim Gee is a world–renowned expert in the field, and has advised private companies and governments from more than 35 countries. Mark Button is Director of the leading Centre for Counter Fraud Studies, Portsmouth University, U.K. Organizations are losing millions of dollars to fraud. This book outlines a comprehensive approach to reducing financial crime and helping return some of the revenue lost to the cost of fraud. countering fraud for competitive advantage : the professional approach to reducing the last great hidden cost 3 Contents 5 1 Introduction 9 1.1 BOOK OUTLINE 12 END NOTES 13 2 The Fraud Problem 15 2.1 INTRODUCTION 15 2.2 THE FRAUD PROBLEM 15 2.2.1 What is Fraud? 16 2.2.2 Types of Fraud 19 2.3 THE EXTENT OF FRAUD 23 2.4 TRENDS IN FRAUD 28 2.5 THE IMPACT OF FRAUD 33 2.5.1 Fraud Leads to More Fraud 34 2.5.2 Psychological and Health Impacts 35 2.5.3 Reputation 36 2.5.4 Change in Behaviour 36 2.6 CONCLUSION 37 FURTHER READING 37 END NOTES 37 3 The Fraudster and the Culture of Fraud 41 3.1 INTRODUCTION 41 3.2 UNDERSTANDING THE FRAUDSTER 41 3.2.1 Profiling Fraudsters 44 3.2.2 Pressure 47 3.2.3 Rationalisation 47 3.2.4 Opportunity 48 3.2.5 Red Flags 50 3.3 CULTURES AND FRAUD 51 3.4 CONCLUSION 54 FURTHER READING 55 END NOTES 55 4 The Resilience to Fraud 59 4.1 INTRODUCTION 59 4.2 NATIONAL RESILIENCE 59 4.3 ORGANISATIONAL RESILIENCE 64 4.3.1 Adopting the Right Strategy 65 4.3.2 Accurately Identifying the Risks 66 4.3.3 Creating and Maintaining a Strong Structure 66 4.3.4 Taking Action to Tackle the Problem 68 4.3.5 Defining Success 68 4.3.6 Overall Analysis 69 4.4 FURTHER RESEARCH 71 4.5 ACFE RESEARCH 71 4.6 UNDERSTANDING THE PROBLEM: FUSING THE FRAUDSTER, THE CULTURE, AND THE STRUCTURES OF RESILIENCE 73 4.7 CONCLUSION 74 FURTHER READING 75 END NOTES 75 5 Measuring Fraud Losses and Tailoring the Strategy 77 5.1 INTRODUCTION 77 5.2 THE PROBLEM WITH RISK MANAGEMENT 78 5.3 MEASURING FRAUD 79 5.4 WIDER BENEFITS OF FRAUD MEASUREMENT 89 5.5 CONCLUSION 90 FURTHER READING 91 END NOTES 91 6 Creating an Anti-Fraud Culture and Preventing Fraud 93 6.1 INTRODUCTION 93 6.2 SITUATIONAL MEASURES 93 6.2.1 Increasing the Effort 94 6.2.2 Increasing the Risks 97 6.2.3 Reducing Rewards 101 6.2.4 Reducing Provocations and Excuses 101 6.2.5 Displacement 102 6.3 CREATING AN ANTI-FRAUD CULTURE 102 6.3.1 A Model Anti-Fraud Culture Strategy 102 6.3.2 Deterrence 105 6.3.3 Reputation 105 6.4 CONCLUSION 106 FURTHER READING 107 END NOTES 107 7 Detecting Fraud and Investigating Professionally 111 7.1 INTRODUCTION 111 7.2 THE COSTS OF INVESTIGATION 111 7.3 WHO WILL INVESTIGATE? 112 7.3.1 Investigative Resources 113 7.4 PROACTIVE INVESTIGATIONS 115 7.4.1 Data-Matching 115 7.4.2 Data-Mining 117 7.4.3 Data-sharing and Networking 120 7.4.4 Intelligence 120 7.5 REACTIVE INVESTIGATIONS 121 7.6 CONDUCTING FRAUD INVESTIGATIONS 123 7.6.1 Interviews 124 7.6.2 Surveillance 126 7.6.3 Searches 127 7.6.4 Forensics 132 7.7 PSYCHOLOGY AND INVESTIGATION 133 7.7.1 Verbal Cues 134 7.7.2 Vocal Cues 134 7.7.3 Visual Cues 134 7.7.4 Experiments Increasing Cognitive Load 134 7.8 CONCLUSION 136 FURTHER READING 137 END NOTES 137 8 Sanctioning Fraudsters and Pursuing Redress 139 8.1 INTRODUCTION 139 8.2 UNDERSTANDING FRAUDSTERS AND THE PLACE OF DETERRENCE 139 8.3 THE SANCTIONS TOOL BOX 141 8.3.1 Quasi-Sanctions 143 8.3.2 The Main Formal Sanctions 145 8.3.3 Possible Parallel Sanctions 147 8.4 PUBLICISING SANCTIONS 149 8.5 CONCLUSION 151 FURTHER READING 151 END NOTES 151 9 Enhancing Performance through Counter-Fraud Metrics 153 9.1 INTRODUCTION 153 9.2 NEWWAYS OF THINKING ABOUT SECURITY AND FRAUD 153 9.3 DEVELOPING A COUNTER-FRAUD METRICS PROGRAMME 158 9.4 DEFINE OVERALL OBJECTIVES/METRICS 158 9.5 DECIDE METRICS THAT MEET THOSE OBJECTIVES 159 9.5.1 Influences 161 9.5.2 Sample Counter-Fraud Metrics 161 9.5.3 Scale of the Problem Metrics 163 9.5.4 Quality Metrics 164 9.5.5 Prevention Metrics 164 9.5.6 Detection and Investigation Metrics 165 9.5.7 Sanctions and Redress Metrics 166 9.6 DEVELOP STRATEGIES FOR GENERATING METRICS 167 9.7 ESTABLISH BENCHMARKS AND TARGETS 168 9.8 DETERMINE HOWMETRICS WILL BE REPORTED 168 9.9 CREATE ACTION PLAN 169 9.10 REVIEW/REFINE CYCLE 169 9.11 CHALLENGES AND CRITIQUE OF METRICS 170 9.11.1 Distorting Behaviour 170 9.11.2 ‘Drowning in Metrics’ 170 9.11.3 Differences in Interpretation Reporting/Recording 170 9.11.4 Fiddling 170 9.11.5 Costs 171 9.12 CONCLUSION 171 FURTHER READING 171 END NOTES 171 10 The Counter-Fraud Professional 173 10.1 INTRODUCTION 173 10.2 COUNTER-FRAUD PROFESSIONAL INFRASTRUCTURE 173 10.2.1 Developing a Professional Infrastructure 175 10.3 THE ESSENCE OF THE COUNTER-FRAUD PROFESSIONAL 179 10.3.1 The Enlightened Professional 180 10.3.2 The ‘Reflective’ Professional 181 10.3.3 The Counter-Fraud Leader 182 10.4 REDEFINING THE COUNTER-FRAUD PROFESSIONAL 184 10.4.1 Pursuing the Holistic Model of Countering Fraud Advocated in This Book 184 10.4.2 Redefining the Lexicon of Countering Fraud 184 10.4.3 Communicating the Rewards to the Wider Organisation, and Particularly the Leaders, of Successfully Countering Fraud 185 10.4.4 Securing Positions of InfluenceWithin the Organisation 185 10.5 THE COUNTER-FRAUD DEPARTMENT 185 10.6 CONCLUSION 186 FURTHER READING 186 END NOTES 187 11 Reaping the New Competitive Advantage 189 11.1 INTRODUCTION 189 11.2 BRINGING THE COUNTER-FRAUD STRATEGY TOGETHER 189 11.3 REAPING THE BENEFITS 191 11.4 HOWQUICKLY CAN LOSSES BE REDUCED AND BY HOW MUCH? 193 11.5 THE WORLD’S 500 LARGEST COMPANIES 195 11.6 UK FTSE 350 COMPANIES 196 11.7 FRENCH CAC 40 LISTED COMPANIES 198 11.8 GERMAN DAX 100 LISTED COMPANIES 199 11.9 CONCLUDING REMARKS: REAP THE ADVANTAGE! 199 FURTHER READING 200 END NOTES 200 Index 203

Substantially reduce the largely hidden cost of fraud, and reap a new competitive advantage.

As the title suggests, Countering Fraud for Competitive Advantage presents a compelling business case for investing in anti-fraud measures to counter financial crime. It looks at the ways of reaping a new competitive advantage by substantially reducing the hidden cost of fraud. Aimed at a wide business community and based on solid research, it is the only book to put forward an evidence-based model for combating corporate fraud and financial crime.

Despite its increase and capture of the news headlines, corporate fraud is largely ignored by most organizations. Fraud is responsible for losses of up to nine percent of revenues—sometimes more. Yet, most organizations don't believe they have a problem and don't always measure fraud losses. This highlights an area for capturing a competitive advantage—with the right counter-fraud strategy, massive losses due to the cost of fraud can be reduced for a fraction of the return.

• Advocates a new model for tackling fraud and illustrates theories with best practice examples from around the world
• The authors have close links with the Counter Fraud Professional Accreditation Board: Jim Gee is a world–renowned expert in the field, and has advised private companies and governments from more than 35 countries. Mark Button is Director of the leading Centre for Counter Fraud Studies, Portsmouth University, U.K.

Organizations are losing millions of dollars to fraud. This book outlines a comprehensive approach to reducing financial crime and helping return some of the revenue lost to the cost of fraud.

**Substantially reduce the largely hidden cost of fraud, and reap a new competitive advantage.**As the title suggests, __Countering Fraud for Competitive Advantage__ presents a compelling business case for investing in anti-fraud measures to counter financial crime. It looks at the ways of reaping a new competitive advantage by substantially reducing the hidden cost of fraud. Aimed at a wide business community and based on solid research, it is the only book to put forward an evidence-based model for combating corporate fraud and financial crime. Despite its increase and capture of the news headlines, corporate fraud is largely ignored by most organizations. Fraud is responsible for losses of up to nine percent of revenues—sometimes more. Yet, most organizations don't believe they have a problem and don't always measure fraud losses. This highlights an area for capturing a competitive advantage—with the right counter-fraud strategy, massive losses due to the cost of fraud can be reduced for a fraction of the return. * Advocates a new model for tackling fraud and illustrates theories with best practice examples from around the world * The authors have close links with the Counter Fraud Professional Accreditation Board: Jim Gee is a world–renowned expert in the field, and has advised private companies and governments from more than 35 countries. Mark Button is Director of the leading Centre for Counter Fraud Studies, Portsmouth University, U.K. Organizations are losing millions of dollars to fraud. This book outlines a comprehensive approach to reducing financial crime and helping return some of the revenue lost to the cost of fraud.