In the first article of our "Identity Risk Management" series, we outlined the staggering financial impact of improperly managing identity risk and the need for a thorough risk analysis. In Part II, we discuss several organizational steps to help mitigate the problem.
Effectively Manage Human Resources
In order to misuse someone's identity, criminals typically attempt to obtain as much as much information as possible on their victims. Personal details are usually a key ingredient in a fraudster's success, but the criminal intent sometimes determines exactly what type of information is necessary. Criminals now have many ways to obtain such information, but it is easier if they have someone "on the inside" of an organization. Bank employees have knowledge of the customers, the business, and depending on their roles, access to many of its operating systems. For a share of the profits, a criminal can quickly gain information on an enormous number of people, making it easier than dumpster diving or shoulder surfing. In a pattern that has been consistent since 1993, "much of the reported fraud committed against companies and organisations is internal (78 per cent)-21 per cent by management and 57 per cent by non-management employees."1
Use Solid Hiring Practices
Most human resources professionals will agree that hiring practices should be strategically aligned with fraud prevention efforts so that bringing new employees into an organization does not introduce unmanageable risk. Solid hiring practices include behavior based interviews, background checks and reference checking. Employees involved in the hiring process should be trained on effective interview techniques in order to discover not only candidates' past achievements, but their expected behaviors in certain situations. This is important because "a review of the known large loss events rarely shows that the individuals involved had criminal backgrounds… Character weakness and not criminal intent is what is usually encountered."2
Provide Adequate Supervision
Your supervisors provide a layer of oversight which can deter internal fraud. But more than policing your organization, your supervisors can also help drive a culture of trust and accountability. Well-articulated values influence employee actions and help determine how employees interact with each other, as well as with management, customers and your community.3 Employing supervisors who understand their job and its impact on the organization and culture can be important to your fraud prevention efforts.
Supervisors can incorporate checks and balances by splitting key duties among several employees, and by mandating vacations for employees with financial responsibilities. If someone is involved in fraudulent activity, red flags can be identified and investigated while they are away. These steps are important for all employees, including management and executives, since the amount lost due to fraud appears to be related to the insider's position. "Frauds committed by owners or executives caused a median loss of $1 million. This is nearly five times more than the median loss caused by managers, and almost 13 times as large as the median loss caused by employees."4
Each employee should understand their role in reducing the likelihood of fraud, so employee training should include how to spot the signs of fraud. The warning signs will vary from one department to the next, but each employee should be aware of the red flags and appropriate actions to take if fraud is suspected.
Designate a Champion
Identity risk and fraud are pervasive problems, and they probably cannot be managed in silos. Rather, a successful anti-fraud program will involve all departments, and all employee levels. A champion can serve as a liaison between various groups in order to achieve a concerted effort. As fraud continues to evolve, champions should deal effectively with the changes. A champion can work with HR to promote and drive a culture of trust, rooted in responsibility and accountability. A champion can also work with facilities and operations to identify physical and procedural safeguards over cash, monetary instruments, other assets, and transactions.
"Companies that understand the business challenges associated with … fraud, that implement best practices for hiring and training, that create a culture of responsibility and trust, and that implement holistic, integrated technology solutions will be best prepared to minimize their losses and mitigate risk of financial and reputational damage.5 Appoint someone who can connect with everyone from entry-level employees to executives, and understands your bank's operations so that they can serve as a liaison between multiple departments. This position can help conduct the risk analysis, coordinate and monitor an internal control system, and drive fraud investigations and prosecutions. Champions may help reap benefits that not only affect the front line but the bottom line.
In our next "Identity Risk Management" article, we will discuss additional methods for mitigating identity risk, including the use of technology.
About ChoicePoint
ChoicePoint (NYSE: CPS) provides businesses, government agencies and non-profit organizations with technology, software, information and marketing services to help manage economic and physical risks as well as identify business opportunities. Each year, we help more than 100 million people who are seeking to obtain jobs, fairly priced home and auto insurance, and who wish to rent apartments. Our authentication and anti-fraud tools improve efficiency and instill confidence in the decision-making process for our customers and consumers. Consumers have free access to the reports we create at www.ChoiceTrust.com. Learn what we do to protect consumer privacy by visiting www.PrivacyatChoicePoint.com and, for more information on our company, go to www.ChoicePoint.com.1 Australian Government Attorney-General's Department, The Changing Nature of Fraud in Australia, August 2000 (Jul 5, 2007). 2 Tapia, Charles, Operational Risk and the Human Resource Manager, Society for Human Resource Management, Jan 2003, (July 5, 2007). 3 Lockwood, Nancy R., Organizational Culture Change: the Key to Sustainability, Society for Human Resource Management, April 2006. 4 Association of Certified Fraud Examiners, 2006 Report to the Nation on Occupational Fraud and Abuse. 5 Santa Fe Group Vendor Council, Internal Fraud: Surveying the Current Landscape, March 2007.
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