What happens in Vegas does not stay there

Fraud detection analytics can save businesses millions, yet many don’t seem to bother, warns ACL


Executives in all industries need to be keeping watch of travel and entertainment expenses, but particularly in the financial services sector, which requires at least some level of spending to generate leads.

Taking a prospective client for a round of golf or dinner isn’t out of the ordinary; in fact, it’s often crucial to new business. But what happens in Vegas, from a T&E perspective, doesn’t stay there. It follows you home.

Although savvy managers might have an eye on the bottom line, the board needs to question whether all departments are effectively monitoring every expense and would catch something that may on the surface appear valid, but in reality is an error or, worse still, fraud.

Every group should be considering the risk and putting controls in place to prevent it, whether through ad hoc investigation or choosing to continuously monitor.

Take the real-life example of an engineer who worked for a defence contractor that has an extensive corporate credit card programme. The individual could legitimately make large purchases for tools, hardware and equipment.

It was only after the implementation of a continuous monitoring programme for the thousands of cards in circulation that it was discovered he had built a second home, having made many small to medium-sized transactions to hardware suppliers over three years. Until this was flagged, all transactions had been listed as valid business expenses.

Every group should be considering the risk and putting controls in place

Although an extreme example, these types of errors and fraudulent acts are unfortunately a reality, and if left unchecked, they can add up very quickly. The Association of Certified Fraud Examiners (ACFE) estimates 14.5 per cent of reported fraud is related to expense reimbursements, with a surprisingly high median instance of more than £15,000.

Another 24.9 per cent that’s reported is attributed to fictitious or inflated invoices, often including the “phantom vendor” scheme in which an employee sets up a fake vendor account through which invoices can be paid to the employee.

There must be at least 20 common fraud detection data analysis tests that can be applied effectively in all of these areas – none of them complex to implement.

The worrying fact, however, is that the ACFE’s statistics only cover fraud that is actually detected, the majority by tip-offs or hotlines. How much would those figures change if every organisation used analytics as part of a comprehensive approach to fraud detection and avoidance?

If a reduction in even a small percentage of these losses results in improvements to the EBITDA [earnings before interest, taxes, depreciation and amortisation] of a business, not to mention protection of its reputation, you’d think that companies would be throwing a lot more resources at solving the problem.

The truth is in the transactions. Find out more: acl.com/fraud