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How BPA Software Can Help Your Company Develop Modern Strategies to Counter Fraud
Since 1996, the Association of Certified Fraud Examiners (ACFE) has released 13 reports on occupational fraud. Based on their extensive data collection and analysis, the ACFE says “that occupational fraud is very likely the largest and most costly form of financial crime in the world, with estimated annual costs in the trillions of dollars” (2024 report, p. 2). It can affect “every type of organization in all industries in every region.” Whatever type of business you manage or work for, fraud is a very real threat.
Fraud can originate inside or outside an organization. It’s also a very common problem, one that most businesses will have to deal with in any given year. Even if fraudsters don’t target your company, you still need to be prepared for the possibility. Being able to prevent fraud or recognize it when it occurs is a huge asset in the modern business world.
As the business world becomes increasingly technological, methods for fraud change. For example, check fraud is still a very real threat in some organizations, but with many companies switching from paper to electronic payments fraudsters adapt as well. Modern fraud requires modern solutions. Business process automation (BPA) software plays a key role in helping your company develop modern strategies to prepare for and combat the risk of fraud.
The Current State of Fraud
ACFE’s Occupational Fraud 2024: A Report to the Nations represents data from 1,921 cases of occupational fraud around the world in 138 countries and territories, with an average loss of about $1.66 million per case. This report specifically looks at fraud committed by someone working for the organization they targeted. The most common types of fraud include asset misappropriation (e.g. cash skimming, expense reimbursement schemes) and corruption (e.g. purchasing schemes, bribery). Overall, the CFOs they worked with estimated “that organizations lose 5% of revenue each year to fraud” (p. 9).
Other common types of fraud emerge from outside the organization. The 2023 AFP Payments Fraud and Control Survey Report from J.P. Morgan reported that fraudsters impersonating employees or vendors “are the root cause of most reported fraud cases” (p. 3). They also reported that “65 percent of organizations” included in their survey “were victims of either attempted or actual fraud activity” (p. 8). While this is “the smallest percentage since 2014,” it still indicates that well over half of businesses can expect to be targeted by fraudsters at some point during the year.
Traditional fraud isn’t the only threat. Research firm Cybersecurity Ventures estimates that by 2031, a businesses, consumer, or device will be targeted by ransomware every 2 seconds. As technology evolves, so does fraud. To protect itself, a company needs to keep its anti-fraud measures up to date.
Root Sources of Fraud
Ultimately, the responsibility for fraud rests on the fraudster. But there are things companies can do to make it harder for people to perpetrate fraud against them. On the other hand, there are things companies can overlook that make fraud easy for people to get away with.
For occupational fraud, more than half of the cases occur when an organization doesn’t have internal controls or the fraudster is able to override the existing controls (ACFE 2024, p. 39). Even in cases where the fraudster overrode internal controls, having internal controls made an organization’s median loss and the duration of fraud lower than in companies without any controls (p. 40, 41).
For payments fraud, the most common types of fraud came from individuals outside an organization (such as a forged check) or Business Email Compromise (BEC) scams (J.P. Morgan 2023, p. 15). Paper checks are the most vulnerable method of payment, and 63% of companies responding to the J.P. Morgan survey stated they’d been targeted by check fraud schemes in 2022 (p. 7). Though many companies plan to stick with paper checks, the increasing use of commercial cards, virtual cards, and ACH payments is accompanied by an increase in fraudsters targeting those payment methods.
Catching Fraud
By far, tips are the most common way that organizations detect internal, occupational fraud. 43% of frauds detected by a company are reported by an employee or (far less commonly) by a customer, vendor, or other party (ACFE 2024, p. 24). The next most common detection methods are an internal audit or management review but that still only accounts for 14% and 13% of detected frauds.
If your organization wants to catch occupational fraud, then your best bet is to make it easy for employees to catch and report suspicious activity. Implementing a formal reporting tool like an online form or a hotline makes it much easier for employees to report suspected fraud. Formal training in fraud detection and how to report fraud also improves the chances of early fraud detection.
Most organizations dealing with payments fraud enlist the help of a banking partner (79%) and/or inform an internal security team (69%). Some also file a report with the police (38%) or inform a federal law enforcement agency like the FBI (35%). Because banks are an organization’s go-to resource for guidance on fraud, it’s important to partner with a bank that has experience dealing with the types of fraud your company might experience.
The Ways Automation Can Help
Business process automation doesn’t catch or prevent fraud 100% of the time, but it is a valuable tool in your organization’s battle against fraud. For one thing, BPA software lets your company customize and automate certain internal controls. This makes it easy to enforce company policies and update them as needed.
Implementing quality automation software also improves visibility into purchases, payments, and other financial processes. This is particularly true if you use an end-to-end solution like NextProcess to automate the entire procure-to-pay cycle as well as employee expense reporting. With a single, centralized system, it’s much easier for your team to notice anomalies and identify possible fraud. The system also improves documentation, making internal and external audits easier to implement and more effective.
Another advantage comes from automating with a Software-as-a-Service (SaaS) company like NextProcess. Because the software is cloud-based and hosted by the software supplier, they can constantly update and monitor the digital security. SaaS companies specialize in creating and maintaining software systems, and they can stay at the cutting edge of digital security and data encryption much more easily than companies that don’t have this specialty. This takes some of the burden for digital security off your company’s hands by outsourcing it to software specialists.
If you’d like to learn more about how NextProcess can help strengthen internal controls, improve visibility, and make your financial processes more secure, contact us today. We’ll be happy to answer any questions you have and schedule a free demo.