Think Like a Hunter When Going After Fraud

For many fraud examiners, identifying and investigating potential fraud in their organization might be comparable to tracking animals in a jungle or forest. Just as you need to be familiar with red flags of fraud while analyzing documents or conducting interviews, you have to know the sights, sounds and smells that indicate an animal may be nearby when tracking. Having that base of knowledge about fraud, or a specific animal, is pivotal to your success in being able to find it.

When imagining an animal tracking scenario that could be likened to catching fraud, let’s look at the civet. Civets are small, nocturnal animals that are native to Asia and Africa who are best-known for helping create some of the most expensive coffee in the world. Due to their small size and nocturnal tendencies, civets are elusive to spot — similar to how fraudsters attempt to cover their tracks through various means of deception. In order to track civets, you need to know the signs they are near and how to distinguish them from other animals. Your tracking tools must be calibrated correctly, and you also need to let others in your tracking party know how to find them; all these things are also true of spotting potential fraud in your organization.

Spotting the Civet: A Look at Invoice Fraud

Most anti-fraud professionals are familiar with a variety of red flags that might be raised when looking at documents or transactions. With my experience leading an investigation into potential invoice fraud, every fake invoice I saw involved a really poor or dull copy that somehow went unnoticed by the employees who processed it. The fake invoices often had numerous discrepancies, such as improper spelling, a poor layout, blurry logos and missing or suspicious contact details — like an email domain being “gmail.com” or “hotmail.com” when the email should have been from a professional using their business email address. Being able to recognize these warning signs of fraud in invoices is just as important as knowing what a civet looks like in a dark jungle if you want to catch one.

Invoice fraud usually only surfaces when the client claims that they have already paid the invoice, even though payment has not been received by the service provider. Even though the employees processing the fraudulent invoice may not be aware they were duped, businesses may still be liable by not having adequate systems in place augmented by user awareness programs aimed at preventing this from happening.

Just as it’s important to know that civets are nocturnal when tracking them, the timing of business activities, like when invoices are submitted, can shed light on patterns of fraud. Fraud examiners should be able to identify trends that something may be amiss based on when they occur — like if transactions are processed over weekends, after working hours or towards the end of a sales cycle tend to raise more red flags. 

 

Finding the Civet Among Other Animals

Jungles are dense with flora and fauna that can produce an overwhelming amount of stimuli, making it difficult to hone in on a single animal. The same can be true when sifting through mountains of data to find fraud. In one of my investigations where I found fraudulent transactions, I spoke to some of the employees who processed the transactions to figure out why they were not flagged. It quickly became evident that the employees were so swamped with heaps of data to process, seeing a red flag became like finding a needle in a haystack.

To alleviate the sheer volume of data that employees process, it’s important for organizations to use analytics programs when possible. These programs need to be designed and calibrated with input from anti-fraud experts. Some anomalies to keep in mind when creating criteria for fraud analytics programs include:

1. Phonetic similarities like (eg. Craig and Greg)
2. Missing or additional hyphens or spaces (eg. a non-Latin name to a Latin name)
3. Differences in punctuation, missing components or letters or truncated names
4. Character limits of different fields or incorrect database fields (eg. When data is entered from other systems and not divided correctly)
5. Spelling differences or similar names (eg., Sean vs. Shaun)
6. Characters added or switched (extraneous characters or when a zero is used instead of the letter O)

Teaching Employees How to Track

It also came to my attention that those employees processing transactions were not sufficiently trained to identify fraud as part of their job duties. Just like how experienced hunters need to educate those in their tracking party on the signs an animal may be near, fraud examiners must train and educate colleagues to flag transactions or documents that have distinct features of fraud. They may not spot one every time, but if they can recognize potential signs and communicate that to an expert civet tracker (a fraud examiner in this case), then the likelihood of success is higher.

For larger organizations, potentially fraudulent invoices or transactions might be reviewed by multiple employees before an alert is raised by a fraud examiner. Ideally, the first employee to process a suspicious document would be able to spot a red flag and turn it over to be investigated — but how are they going to pick up potential fraudulent transactions if they don’t know what fraud looks like?

Organizations should mandate proactive fraud training for employees in all departments and job functions at least annually. These trainings can focus on preventative measures, or they can explore real case studies and focus on lessons learned. In order to make the biggest difference, it’s especially important to tailor fraud training to the job functions or departments of employees; an employee in the sales department will encounter different red flags of fraud than an employee in the HR department. Once employees are aware of what to look for, they can start passing on suspicious documents or transactions to fraud examiners.

Investing in Education and Prevention

As the ACFE’s 2020 Report to the Nations shows, the longer a fraud goes undetected, the more damage it does to the victim organization. Similarly, the longer a hunter and hunting party need to use time and resources to track an animal, the costlier it will be to all involved.

In addition to training for all employees, developing a fraud risk management program and using fraud risk assessments are useful tools for organizations to identify their vulnerabilities and determine what practical controls they should adopt. When organizations shy away from investing in preventive measures, it can lead to larger losses and potential reputational damage.

So next time you are thinking about your process for preventing, detecting and investigating fraud, ask yourself what a civet tracker would do. Do you know all the signs a civet (fraud) may be nearby? Can you spot it among other animals? Do members of your tracking party (colleagues) know what they’re looking for? If the answer to any of these questions is uncertain, you might need to reevaluate how your organization is undertaking fraud examination. You, and your colleagues, can’t expect to find fraud if you don’t know how to track it first.