The global forensic audit market was worth an impressive USD12bn by 2019. This should not be surprising, as fraud and financial crime was estimated to be an industry worth a whopping USD1tn. Fraud is becoming increasingly sophisticated and expensive. Hence, it is imperative to use forensic compliance as an effective tool.
Ways in which forensic compliance can be used for fraud detection:
Involving Stakeholders
Forensic compliance is conducted involving key stakeholders within a business. These stakeholders are likely to be cognisant of areas that may be vulnerable to fraud. They would be able to offer valuable insights while investigating scenarios where fraud needs to be detected.
Analysing Risk Trends
Forensic compliance enables organisations to create trend maps to get visual representation of risk-related trends. There would be certain risks that make organisations highly vulnerable to fraud. Key risks or critical risks are identified thanks to forensic compliance so that organisations can take suitable measures. Systems put in place due to forensic compliance are constantly monitored for ongoing and upcoming risks.
Performing Compliance Testing
There may be instances when fraudulent entities take advantage of internal loopholes. In some cases, unscrupulous insiders may be involved in committing fraud. Therefore, while reviewing processes or systems or products, compliance testing must be conducted to ensure that all specifications required by predefined policies or standards are adhered to. Any anomaly detected could help investigators discover fraud.
Consolidating of Fragmented Data
Fraud could also occur due to non-adherence to contracts. In large organisations, legal agreements are likely stored in disparate systems. Amendments to key regulations may also not be updated regularly. Thanks to forensic compliance, measures can be taken to consolidate this fragmented and vital data. This would ensure that organisations can seamlessly determine whether fraud has taken place or not by quickly accessing these agreements and vetting them.
Scrutinising Vendors and Other Partners
Fraud may also occur if vendors or other partners are unable to manage risk effectively. By implementing forensic compliance, organisations could identify whether fraud has occurred due to errant vendors or partners
Implementing Risk-Mitigation Measures
Fraud is a risk, and one of the most effective ways to reduce the adverse effect of fraud is by implementing risk-mitigation measures. Reviews conducted by risk management, compliance and financial teams can be analysed periodically to detect red flags that may have emerged. Organisations must also investigate risks unaccounted for and implement appropriate mitigation measures for these. Organisations could also empower their financial risk management teams to scrutinise business processes and create detailed and exhaustive reports along with recommendations to mitigate risks. These would be useful in getting decision makers on board to make changes in processes that need management buy-in.
Enabling Regular Monitoring
Forensic compliance can put practices in place to regularly monitor processes and activities to detect red flags. Automation platforms or tools could be used to augment monitoring efforts. Monitoring efforts could be difficult in the case of large organisations. Therefore, it would make sense to implement monitoring measures in specific areas that are likely to be vulnerable to fraud.
Organisations, especially those in the financial services space, could consider outsourcing forensic compliance to a credible partner. Such a partner would be able to assist in practising forensic compliance and helping with fraud detection.
