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Challenges of fraud management in public and private sectors


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I used these slides during a training session on fraud prevention, detection and investigation. This training was arranged by the Business School of the University of Leicester, hence, the branding of slides, etc.

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Challenges of fraud management in public and private sectors

  1. 1. Counter Fraud and Counter Corruption Workshop, 5-6th March, 2015 ‘Who cares about fraud and corruption and what does it mean to us?’ Audrius Šapola Regional Head of Security Financial Services Industry
  2. 2. Visible fraud vs. invisible fraud
  3. 3. # Fraud is an umbrella term that covers multitude of offences (Higson, 1999), lacks a single definition and its nature is often broad and complex (Gates & Jacob, 2009; Doig, 2006) # Size and complexity of the industry (Smith, Button, Johnston & Frimpong, 2011) # Organizations are unaware about the extent of fraud (Button, Gee & Brooks, 2012) # Fraud can remain undetected for years (Smith et al, 2011) # If reported, tarnishes organization's reputation (Higson, 1999) # Senior management avoids being blamed incompetent, etc. (FSA, 2003) # Organizations might have low trust in the process of criminal justice (Button, Lewis & Tapley, 2009) or recoup fraud losses through other means (Tunley, 2011) # Police statistics and global fraud surveys are of limited value (Gee, Button & Brooks, 2010; Flemming, 2009) Why Fraud Often Remains Invisible?
  4. 4. Four wise men and …a snake?
  5. 5. ‘Due to the nature of the financial services market and the volume of money that flows through the sector it is inevitably going to be a target for fraudulent activities and utilized as a conduit for such activities’ Wright (2012) Is financial services industry vulnerable to fraud?
  6. 6. # Don’t share fraud data # Don’t have the same fraud definitions # Don’t share data on known fraudsters # Tackling fraud is often given low priority # Rarely share data on best practices # Lack adequate training, qualifications or/and resources for its counter fraud staff # Finally, banking legislation doesn’t provide enough guidance on how banks should deal with fraud Financial Services Firms
  7. 7. Law Enforcement Agencies # Often lack resources, motivation and relevant skills # Do not always understand banking products # Often engage in “Blame the victim” behavior # Jurisdictional limitations
  8. 8. Bribery and corruption are even more hidden activities than fraud!
  9. 9. References 1. Button, M., Gee, J., & Brooks, G. (2012). Measuring the Cost of Fraud: An Opportunity for the New Competitive Advantage. Journal of Financial Crime, 19(1), 65-75. 2. Button, M., Lewis, C. & Tapley, J. (2009). Fraud Typologies and the Victims of Fraud Literature Review, London: NFA. 3. Doig, A. (2006). Fraud, Devon: Willan Publishing. 4. Financial Services Authority (2003). Developing Our Policy on Fraud and Dishonesty. London: FSA. 5. Fleming, H. M. (2009). FSA’s Scale & Impact of Financial Crime Project (Phase One): Critical Analysis (OPS 57). London: FSA. 6. Gates, T. & Jacob, K. (2009). Payments Fraud: Perceptions versus Reality – a Conference Summary. Economic Perspectives, 33(1), 7- 15. 7. Gee, J., Button, M. and Brooks, G. (2010). The Financial Cost of Fraud. Milton Keynes: MacIntyre Hudson. 8. Higson, A. (1999). Why is Management Reticent to Report Fraud? An Explanatory Study. Retrieved from 9. Smith, G., Button, M., Johnston, L., & Frimpong, K. (2011). Studying Fraud as White Collar Crime. Basingstoke: Palgrave-Macmillan. 10. Tunley, M. (2011). Uncovering the Iceberg: Mandating the Measurement of Fraud in the United Kingdom. International Journal of Law, Crime and Justice, 39(3), 190-203. 11. Wright, P. (2012). Policing and Regulating Financial Services. In A. Doig (Ed.), Fraud: The Counter Fraud Practitioner’s Handbook (pp.43-57). Farnham: Gower Publishing Ltd.
  10. 10. Counter Fraud and Counter Corruption Workshop, 5-6th March, 2015 ‘Setting the Tone Throughout the Organisation’ Audrius Šapola Regional Head of Security Financial Services Industry
  11. 11. Fraud prevention: • Counter fraud policies and procedures • Risk assessments • Counter fraud training and awareness • Vetting of staff, customers and business partners The elements of fraud prevention framework Fraud detection: • Fraud monitoring tools • Audits • Incidents reporting • Whistleblowing Fraud Response: • Incident investigations • Loss recovery • Disciplinary actions • External investigations • Lessons learned British Bankers’ Association, 2007
  12. 12. ‘Fraud control – in any profession – is a miserable business. Failure to detect fraud is bad news, and finding fraud is bad news, too’ Malcolm K. Sparrow (1998)
  13. 13. ‘The best way to get management excited about a disaster plan is to burn down the building across the street’ Erwin, D., Security Manager, Dow Chemical Co.
  14. 14. Naive: Organization is unaware of the need to manage risks, processes are reactive or repetitive, learning from mistakes doesn’t exist Novice: Organization is aware of potential benefits, but its either experimenting with risk management or their processes have fundamental weaknesses Normalized: Management of risk is built into routine business processes, the benefits of risk management are understood, but not consistently achieved Natural: Organization has a risk-aware culture with a proactive approach to risk management in all activities, and consideration of risk is inherent in all processes Risk maturity of your organization? Hopkin, P. (2010)
  15. 15. The Fireman Broadbent (2007)
  16. 16. The Policeman Broadbent (2007)
  17. 17. The Knight Broadbent (2007)
  18. 18. References 1. British Bankers‘ Association (2007). Fraud Manager‘s Reference Guide. London: BBA. 2. Broadbent, G. D. (2007). What Kind of Safety Leader are You? Retrieved from 3. Hopkin, P. (2010). Fundamentals of Risk Management. London: Kogan Page Ltd. 4. Sparrow, K. M. (1998). Fraud Control in the Health Care Industry: Assessing the State of the Art. Retrieved from