Investigative Intelligence

Based on Kroll’s experience of cases in China over the past 18 months, a typical fraudster in China is often someone who appears trustworthy, and is smart, articulate, has the ability to think outside the box and lives a lifestyle beyond their means. These fraudsters behave like entrepreneurs, having high tolerance for risk and ambiguity, and a low fear of failure. While they may work hard at their jobs, they generally believe they deserve to be compensated better. This misguided sense of entitlement, coupled with the ‘fear of missing out’, dictates their spending habits, leading them to live beyond their means which often results in a continued search for ever-bigger rewards. Such self-justification/rationalisation also leads to denial of any wrongdoing when committing fraud and such a fraudster may explore multiple opportunities to make a personal gain, ranging from seemingly insignificant employee expense fraud to larger matters such as manipulating or ‘hijacking’ entire sales/distribution channels, and from one-off misappropriation of large company’s assets to frequent small value frauds.

How to combat insider fraud
Here are five key preventive steps an organisation can take:
1. third party and employee due diligence – knowing the background, reputation and financial strength of customers, vendors and employees can allow the organisation to identify and mitigate potential associated risks;
2. fraud risk assessments – a comprehensive fraud risk assessment can enable the organisation to thoroughly evaluate its business operations, identify and manage those processes, internal controls, and procedures which could be subject to higher fraud risks;
3. regular transaction review – transactional data analytics supplemented by regular transaction testing can help the organisation to identify potential fraudulent transactions and evaluate them on a more timely basis;
4. establishment of robust fraud response protocol – the protocol will set out the procedures required to be followed when a fraud or other irregularity is discovered or suspected. It will demonstrate that the organisation is prepared and ready to tackle fraudulent activities if and when necessary; and
5. involvement of experts – an independent forensic expert can help the organisation to investigate and objectively evaluate any matters of concern. An expert can utilise different tools (such as computer & mobile forensic technology and access to various information databases), methods and procedures, depending on the needs and deploy a team within a short time frame.

While the above mentioned steps and insights into the mindset of a typical fraudster in China provide effective preventive efforts, it is critical that such efforts are supplemented by a strong ‘tone at the top’ and ‘zero tolerance’ message from senior management, which should be comprehensively cascaded down throughout the organisation.

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Endnote:
1. http://www.kroll.com/global-fraud-report