Fraud Week 2020: Lessons Learned from Real Life Stories of Fraud

By Lowers & Associates,

COFFEE BREAK SERIES: FRAUD WEEK 2020 Lessons Learned from Real-Life Stories of Fraud Neil Watson Director, Global Operations, Lowers & Associates

Think it’s too good to be true? (You’re probably right.)

This week, we have been proud to recognize and support the Association of Certified Fraud Examiners’ 2020 Fraud Week initiative with our special Coffee Break Series. Fraud Week is an annual movement organized by the ACFE to champion the need to proactively fight fraud and help safeguard businesses and investments from the growing fraud problem. We have shared a number of stories and lessons through the eyes of Certified Fraud Examiners and other fraud experts on our team, examining issues such as fraud detection, whistleblower programs, situational awareness, and cyberfraud.

For our final episode, we interviewed Neil Watson, Director, Global Operations for Lowers & Associates. Neil has more than 30 years’ experience in the insurance industry which includes over 20 years working within the Fine Art, Jewellery and Specie (FAJS) sector. It is through this lens that Neil shares three stories of FAJS insurance-related fraud and key lessons that can be applied to any industry:

1. Nickel Wire: Worth How Much?

In this story, Neil encounters nickel wire that was reportedly worth $300/meter and the owner was seeking to insure 6 million meters worth. If nickel wire was worth that much, wouldn’t we all be invested in it? Neil shares how some quick research revealed the ludicrousness of this attempted fraud.

2. Rubies: Really?

Neil has some great stories to tell about ruby gemstones. The usual quarterly sale of all rubies sold around the world is in the neighborhood of $40-$50 million. The highest value single ruby ever sold was $30 million. Here, he shares what it’s like to receive a fantastic photo of a stone someone is wanting to insure that is reportedly worth $250 million. Really?

3. Platinum Concentrate: Unearthing the Truth.

Neil tells the story of the great effort a group of fraudsters went through to present a compelling story of $5 billion worth of platinum concentrate they wanted to insure. The Lowers team went so far as to visit the facility only to unearth the truth of the matter.

Grab a cup of coffee and spend 8 minutes with Neil to hear three stories that will make you believe when something feels too good to be true, it probably is.

 

 

We hope you enjoyed this week’s special Fraud Week Coffee Break Series. You can access the full roundup of episodes here. At Lowers Risk Group, we’re intent on helping organizations protect their people, brands, and profits from avoidable loss and harm. If you think we can be of assistance to you, request a meeting and let’s get to work.

 

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Fraud Week 2020: Cyberfraud and COVID-19

By Lowers & Associates,

Fraud Week 2020: Cyberfraud and COVID-19

Think You’re Not at Risk? Think Again.

Our special 5-part Fraud Week Coffee Break Series continues today where we invite you to spend 10 minutes each day learning about various aspects of fraud detection and prevention through the eyes of our Certified Fraud Examiners and other fraud experts.

For this episode, we interviewed Steven Schwartz, Chief Revenue Officer for Periculus and a recognized innovation leader in the fields of risk management and cybersecurity. Periculus is a digital risk company specializing in helping small businesses measure, understand, and protect against digital risks so they can pursue growth. Before launching Periculus, Schwartz led strategy and insurance at Cytegic, one of the industry’s leading cyber risk quantification platforms, playing a vital role in the company’s successful acquisition by MasterCard in June 2020.

In its September 2020 Fraud in the Wake of COVID-19 Benchmarking Report, the Association of Certified Fraud Examiners (ACFE) reported, “Cyberfraud (e.g., business email compromise, hacking, ransomware, and malware) continues to be the most heightened risk for organizations, with 83% of respondents already observing an increase in these schemes and 90% anticipating a further increase over the next year.”

Many experts believe that organizations were simply unprepared from a cyber perspective for the pandemic and its resulting shift to a remote work environment where employees are now operating outside the usual infrastructure and oversight of their organizations.

As Schwartz explains, “We’re in an interesting time right now, where we’ve never been so polarized, yet so connected. With the increase in digital connectivity comes an exponential increase in the vulnerabilities and threats. The doors are open for attackers to exploit.”

Grab a cup of coffee and spend 7 minutes listening to Schwartz’s view on cyberfraud during COVID-19 and how organizations can better protect themselves moving forward.

How Can Organizations Better Protect Against Cyberfraud?

As with any type of risk an organization faces, it starts with an assessment to develop a true understanding of the risks you face and how those risks might impact your organization. From that place of understanding, you can make decisions about how to effectively mitigate or transfer those risks.

Schwartz explains it this way: “If you just tell me my risk is a 3 out of 5 and that’s all you tell me, I have no idea what that means to my business. But if you tell me I’m a 3 out of 5 with a financial impact of 2 million dollars, it becomes contextualized. And if we take that a step further and we’re able to demonstrate the controls you should invest in because they’re going to have the greatest impact in reducing your risk and financial impact and this is how much you should consider transferring via insurance, we can start to make sense of it all.”

We hope you enjoyed this Coffee Break episode. Come back tomorrow to hear from Neil Watson and lessons learned from real-life stories of fraud.

Fraud Week 2020: Fraud Runs Amok

By Lowers & Associates,

Fraud Runs Amok: Where Are the Whistleblowers and Auditors Today? Sergio P. Negreira, CPA, CFF, JD EVP, Latin America & Global Forensics Services Lowers Forensics International

Where Are the Whistleblowers and Auditors?

Today, we continue our special 5-part Fraud Week Coffee Break Series where we invite you to spend 10 minutes each day learning about various aspects of fraud detection and prevention through the eyes of our Certified Fraud Examiners and other fraud experts.

For this episode, we interviewed Sergio Negreira, CPA, CFF, JD. Sergio is Executive Vice President, Latin America and Global Forensics Services for Lowers Forensics International. He specializes in forensic investigative services, FCPA and fraud risk assessments, corporate compliance, lost profit calculations, economic and market analysis, alternative dispute resolution in domestic and cross border disputes, and business interruption/fidelity insurance claims. Negreira has investigated fraud cases around the globe for the past 27 years.

Fraud Week is an annual movement, organized by the Association for Certified Fraud Examiners (ACFE), to champion the need to proactively fight fraud and help safeguard businesses and investments from the growing fraud problem.

In its 2020 Report to the Nations on Occupational Fraud, the ACFE looked at how fraud is detected. As it turns out, 43% of occupational fraud is detected by tips. The next most common way is 15% by internal audit. These statistics underscore the vital role of whistleblowers and the need for organizations to provide programs that enable employees and others to be able to safely report suspicious activity.

Grab a cup of coffee and spend 8 minutes listening to Negreira’s view on the critical role of whistleblower programs in fraud detection.

Fraud Detection

Whether by whistleblowers or other methods, fraud detection is a concept organizations need to understand in order to limit the losses they suffer at the hands of fraud. The faster organizations can detect fraud, the smaller the size of the loss. According to the ACFE, “It is also key to fraud prevention because organizations can take steps to improve how they detect fraud, which in turn increases the staff’s perception that fraud will be detected and might help deter future misconduct.”

As mentioned, by a large margin, tips from whistleblowers are the most common way occupational frauds are uncovered. This fact underscores the importance of cultivating and thoroughly evaluating tips that come in through your whistleblower program.

Here’s what the data reveals about fraud detection methods:

How is occupational fraud initially detected?
Source: ACFE 2020 Report to the Nations

 

How COVID-19 is Impacting Whistleblowers and Auditors

Preventing, detecting, and investigating fraud is more difficult during the COVID-19 pandemic. In fact, according to the ACFE’s COVID-19 Benchmarking Report, “An inability to travel is still the most significant challenge in combating fraud right now, but more people are citing conducting remote interviews as a current top challenge.”

Negreria adds, “In COVID, since a lot of people are still working remotely, a lot of employees can’t observe other employees’ habits and what they’re doing. And in general, investigating during COVID is very difficult because companies aren’t open and travel is more difficult.”

Despite the challenges, organizations are wise to continue to support whistleblower programs and maintain their focus on fraud detection and investigations during the pandemic where the pressure, opportunity, and incentive for fraud is very high.

We hope you enjoyed this Coffee Break episode. Come back tomorrow to hear from Carlos Rivera, CFE, MAFF, Senior Vice President – Caribbean & Latin America of Lowers Forensics International and Grant Mizel, Financial Analyst, Emerging Markets of Lowers Risk Group. Rivera and Mizel will speak about situational awareness and the Fraud Triangle during COVID-19.

2019 Fraud Week Wrap-Up

By Lowers & Associates,

We were proud to join the Association of Certified Fraud Examiners’ (ACFE) 2019 Fraud Awareness Week as an official supporter. Saturday, November 23, 2019 will conclude a weeklong effort by the ACFE to minimize the impact of fraud by promoting anti-fraud awareness and education.

Companies lose an estimated 5% of their revenue annually as a result of occupational fraud, according to the 2018 ACFE Report to the Nations. It turns out, the risk of occupational fraud is much higher than many managers and leaders realize. Each case results in a median loss of $130,000 and with cases lasting a median of 16 months, fraud is something organizations of all sizes must take care to detect and deter.

In support of Fraud Week, we produced several informational articles, which are summarized here for easy reference:

2019 Fraud Week Series: How Technology is Helping in the Fight Against Fraud

How Technology is Helping in the Fight Against Fraud

The key to catching fraudulent actions before real damage is done is having systems in place to ferret out anomalies and report suspicious activities early. This means being equipped with tools like automatic monitoring, artificial intelligence, and anomaly detection protocols. For instance, surprise audits and data monitoring are a powerful combination in reducing fraud loss. Though only 37% of the companies examined in the ACFE  study used them, those that did got fraud cases under control in approximately half the time and reduced fraud losses by more than 50%.

Read the full post

The ACFE’s 5 Big Fraud Tips You Should Act on Now

The ACFE’s 5 Big Fraud Tips You Should Act on Now

As part of the 2019 International Fraud Awareness Week, the Association of Certified Fraud Examiners (ACFE) distributes information and training to help anti-fraud professionals reduce the incidence of fraud and white-collar crime. A recent ACFE publication, 5 Fraud Tips Every Business Leader Should Act On, spells out five ways organizations can work to prevent and minimize fraud in the workplace. We’ve paired their recommendations with the research-based actions you can take to achieve these aims.

Read the full post

Recovering Fraud Losses: What the Numbers Reveal

Recovering Fraud Losses: What the Numbers Reveal

Losses from occupational fraud topped $7 billion in 2017, according to the Association of Certified Fraud Examiners’ (ACFE) most recent global study on occupational fraud and abuse, 2018 Report to the Nations. The median loss for all cases in the study was $130,000 USD, yet a full 22 percent of companies lost $1 million or more. To add insult to injury, only 15 percent of businesses that experienced fraud were able to fully recover their losses.

Read the full post

7 Must-Haves for Occupational Fraud Prevention

7 Must-Haves for Occupational Fraud Prevention

These seven fraud prevention strategies, drawn from the 2018 Report to the Nations by the Association of Certified Fraud Examiners (ACFE), will go a long way in fortifying your organization against the conditions that can facilitate occupational fraud at the workplace.

Read the full post

We hope you have taken some time this week to think about your 2020 fraud prevention programs and strategies and how you’ll build early fraud detection and proactive prevention into your processes.

No company is immune to fraud.

Recovering Fraud Losses: What the Numbers Reveal

By Lowers & Associates,

Recovering Fraud Losses: What the Numbers Reveal

Losses from occupational fraud topped $7 billion in 2017, according to the Association of Certified Fraud Examiners’ (ACFE) most recent global study on occupational fraud and abuse, 2018 Report to the Nations. The median loss for all cases in the study was $130,000 USD, yet a full 22 percent of companies lost $1 million or more. To add insult to injury, only 15 percent of businesses that experienced fraud were able to fully recover their losses.

Recovering Fraud Losses: What the Numbers Reveal

The common theme in the report is that, while it’s often worthwhile to pursue remedial action against perpetrators, victims will usually not be made whole. Here are three factors negatively impacting these recuperation efforts.

1. Failure to Report

After a fraud has been discovered and investigated, a case might proceed to prosecution, civil litigation, both, or neither. In its annual study, ACFE researchers tracked the percent of cases that were referred to law enforcement or resulted in a civil suit being filed for each year dating back to 2008. They found that the rate of criminal referrals has been gradually decreasing over that time, from 69 percent in 2008 to 58 percent in 2018. In contrast, the rate at which civil suits are filed has stayed consistent, ranging from 22 percent to 24 percent within the same timeframe.

There are many reasons why victim organizations might decide not to refer cases to law enforcement and therefore forego any additional recuperation of the loss that may result. The top five cited reasons are:

  1. Fear of bad publicity: 38%
  2. Internal discipline sufficient: 33%
  3. Too costly: 24%
  4. Private settlement: 21%
  5. Lack of evidence: 12%

2. The Greater the Loss, the Less Likely the Recovery

There is an inverse relationship between the amount that victim organizations lose to fraud versus what they are able to recover. So, even if the organization decides to pursue legal action, they are not likely to achieve full recovery. Here’s how the numbers panned out:

  • Losses of $10,000 or less had a 30% chance of recovery
  • Losses of $10,000 to $100,000 had a 16% chance of recovery
  • Losses of $100,001 to $1,000,000 had a 14% chance of recovery
  • Losses of $1,000,000 or more had an 8% chance of recovery

3. Desire to Avoid Fines

A third reason recovery efforts can be hampered is the knowledge that organizations may receive monetary fines from authorities for having inadequate controls in place and thus enabling fraud to occur.

Of the three types of occupational fraud – asset misappropriation, corruption, and financial statement fraud – the latter had the greatest likelihood of fines, at 17 percent. And, fines were imposed regardless of the size of the loss. For example, organizations that lost $10,000 or less were fined 14 percent of the time while those that lost $1,000,000 or more were fined 20% of the time.

At a median of $100,000 per fine, these penalties were no small matter.

An Ounce of Prevention

Given that recovery is an uphill battle, the takeaway is this: organizations should do what they can to prevent fraud from happening in the first place. Internal controls, codes of ethics, recognizing red flag behaviors, and the availability of reporting mechanisms are all tried-and-true methods for realizing that goal.