Scam report: Insider fraud

June 21, 2011 by bkrenek

When the economy dips, insider fraud rises, and the latest recession offers no exceptions.    Whether it’s intellectual property theft, sabotage, or privacy breaches made possible by the illicit use of privileged information, fraud by insiders – be they employees, contractors, consultants, or trusted business partners – can be difficult to monitor, detect and prevent.

According to a Report to the Nations on Occupational Fraud and Abuse, in 2009, the average company lost nearly 5% of its revenue to fraud perpetrated by employees, with 85% of fraud committed by individuals with no prior records of abuse.  The problem is most serious within the financial services industry.  Last year’s Global Fraud Report, published by the Association of Certified Fraud Examiners, states that 80% of all fraud is attributable to those who work in the accounting, operations, sales, customer service and purchasing departments of lender or financial services businesses.  And according to a report by Celent, insider fraud accounts for approximately 60% of bank fraud cases in which a data breach or theft of funds has occurred, although only 50% of insider fraud is ever reported.

Amongst these insider scams within the financial services industry, rogue trading is alleged to present the most significant challenge, followed by manipulation of credit card transaction processing systems.  The latter type of fraud is illustrated in the example of a large financial institution that purchased an employee-fraud detection system; within a week, 19 people were caught stealing cash, including one employee who personally pocketed $350k.

With bottom lines so deeply affected by this insidious activity, it’s no wonder that banks understand the importance of fraud detection systems, although there is still a widespread need amongst these institutions for systems that are effective.

So aside from anti-fraud systems, how can businesses address insider fraud?  Here are a few simple tips:

  1. Limit access by controlling the information available to employees.
  2. Protect your inside by continually monitoring employees who have access to your most important data (including regular background checks).
  3. Get help from your own employees, who can be a terrific resource to detect fraud from errant colleagues.