At the outset it is always important to understand what “Fraud” means:
Fraud is defined as misrepresentation of a fact by the perpetrator of fraud knowing it to be false and the person “Victim” believing it to be true and acting on such belief and incurs monetary and financial losses while the fraud perpetrator gains at the cost of the “Victim”.
This article is an attempt to give Protection against Frauds to at least minimize the risks against various frauds and scams.
Fraud can be committed by any person explained in the concept of Fraud Triangle.
1. Opportunity
2. Rationalization
3. Pressures.
It can be employee, employer, management, vendor, supplier or any third party or hackers or fraudsters.
There are several ways a fraud can happen to a person or an organisation and in this age of developments in technology and dependency on electronic media and online transactions the incidence of frauds has also gone up skyward.
Several topics dealing with fraud have been discussed in this website, that gives an idea of the extent and scope of frauds and their effect on the “Victims” financially, emotionally and causing monetary losses to drive the victims to fatality. Also dealt in the website various preventive steps and red alerts.
Here it is explained that it is high time that Corporates as well as individuals Insure themselves against various frauds.
The Following are the various instances against which a corporate or any individual should pay specific attention and put in place policies and procedures and strong internal controls.
1. Corporates frauds include frauds by CEO and CFO frauds or directors, also may cheat on the company funds by cooking books or diverting funds or simply transferring to shell companies.
2.Trusted employees who are in long term employment with the company, as most frauds happen with insiders within the company.
3. Transfer of funds by the company accountant on the instructions of his “Boss” over telephone, who in fact is a fraudster impersonating the “Boss” and giving instructions to transfer an amount of money to meet some urgent payment or commitment.
4. A fraud can be due to:
a. External fraudster
b. Cyber fraudsters
c. Internal frauds
d. Frauds due to digitization of data
e. Poor or lack of internal controls.
All the above frauds cause loss of money, loss of property and theft of data.
The extent of such losses can be mitigated to some extent by taking insurance against such instances.
However, it may not be possible for each organisation or individual to insure against all the above instances of fraud due to cost factor of insurance premiums.
Each organisation should insure the specific instance that is most relevant to it.
Organisations must incorporate strong internal control systems to prevent or restrict frauds than spend monies on huge insurance premiums.
It is to be noted that faceless people as well as unscrupulous agents of insurance companies again may pose another Fraud issue, especially with gullible individuals.
Frauds in the name of insurance have also become very frequent with the technology that is available in this age of information and technology and fraudsters are becoming more articulate.
Further as some of the insurance companies are outsourcing their services, there is scope of leakage of information relating to the insured and the fraudsters initially gather information of existing policies and then devise plans to convince the “Victims” into false insurance policies and huge premiums.
Basically, organisations should have a strong internal fraud policy covering the following major points:
1. Policy on passwords and their usage at various levels of employees in an organisation.
2. Regular sessions with all staff and educating on the consequences of committing frauds, as statistics shows that most of the frauds are committed internally.
3. Taking Insurance against various frauds as discussed above.
4. Employee back ground checks and academic qualifications and previous employer certificates.
5. Have a strong IT Policy and data backups at regular intervals.
6. Strong Organisational structure with division of responsibilities and accountability.
7. Strong Internal Control Procedures with SOP on various functions of the organisation.
