We Need to Talk About the F Word

Now more than ever, business fraud poses a company-destroying risk. Even multinationals, with their expertise spread thinly, are not immune to the threat.

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Liam Chennells, CEO at Detected, examines increasingly common patterns of fraud and how business execs can protect their company against them.

It’s time to talk fraud.

It doesn’t matter how robust a supply chain, how thorough a marketplace on-boarding business unit or how seasoned a procurement team; fraud can strike any business at any time. This unfortunate truth has existed for millennia, all the way back to Julianus, one of the world’s first ever charlatans who tried to falsely sell the Roman Empire’s throne.

Ever since that moment, unscrupulous people have attempted to defraud businesses for a variety of reasons. Sometimes it’s desperation or taking advantage of human error; other times, it’s criminal coordination on an international scale or audacious opportunists.

Battling fraud has always been about successful mitigation – closing loopholes, shoring up supply chains, reducing the business’s exposure to risk, utilising the technology of the time, and plenty of employee education and continued alertness.

Why talk about fraud now?

As history shows, when times get tougher, fraud increases. Businesses and the global economy are once again going through the wars and we are smack bang in the middle of a ‘peak fraud’ period.

The examples coming to light are many. Impersonation schemes are on the rise. Internal fraud is being normalised. Even the UK Government has found itself under scrutiny. An estimated £26 billion in Bounce Back Loans are expected to vanish into the ether due to ineffective due diligence, fraudulent applications and other reasons. Let’s not overlook the fury surrounding PPE contracts too.

As history shows, when times get tougher, fraud increases.

Manual due diligence and time-consuming processes no longer cut it, especially during periods of such extreme economic uncertainty where speed means everything. In today’s digital economy, now is the time to find a better way to deliver the real-time insight necessary for informed decision-making.

This is easier said than done. Multinational and corporate due diligence teams are stretched thin. Those in positions of responsibility are distracted; their judgment, clouded. People are so focused on keeping their businesses above water, or their jobs, that rash decisions are common. This unfortunate cocktail of risks opens up gaps for fraudulent parties to take advantage of a business – but perhaps not in the way you might think.

Yes, threats like counterfeiting or financial scams are still taking place, however in a lot of corporate fraud cases, it’s unvetted suppliers who pose some of the most significant risks.

This may be an errant buyer who lied about their solvency or credit rating when applying to work with you. That’s fraud. Perhaps a seller you placed an order with on a trusted B2B marketplace has suddenly vanished. Big use of the F word here, and a damaged supply chain to boot. The corporate undead – aka zombie firms – are a vulnerability too.

All of these examples can considerably impact team productivity, commercial progress and business efficiency if they are taken advantage of for malicious purposes.

Solutions, not problems

How do you fight this problem? Start by rethinking how due diligence is conducted.

In most cases, the information collected during supplier on-boarding is trusted implicitly and rarely refreshed, meaning that once your business relationship goes beyond the point of application, the intelligence is as valuable as the paperclip used to fasten the report together. In other words, insight is immediately out of date and therefore at risk of fraud.

Focus next on fundamentals. Ensure you can answer the following questions for every trading partner you have at any given time.

  • Are the directors trustworthy?
  • Can you see any discrepancies in the company’s trading history?
  • Is there current or past legal action against the company?
  • Is the company solvent?
  • Has its credit rating changed recently?
  • What happens to us if this partner fails?

RegTech plays an important part in this process and can simplify how businesses collect, and act on, corporate intelligence. It also delivers the real-time insight needed at scale to assess, validate and prove that the information being given by suppliers is indeed truthful.

How do you fight this problem? Start by rethinking how due diligence is conducted.

Trust no-one is the age-old phrase that resonates in this scenario.

The next time someone comes knocking on your company’s door, offering to sell you the keys to the Roman Empire or simply wanting to do business with you, ensure you are confident in what you know about that business before integrating them into your supply chain.

And if you don’t, you might be using a different F word in the near future…

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