ACL Identifies Top Three Fraud Risks

Canadian fraud detection specialist ACL said that it has identified the top three categories of fraud that corporates should watch out for as part of robust, data-driven fraud risk management in 2014.

The Vancouver, British Columbia-based group said the list was in response to growing concern among its customer base regarding an urgent need to ensure that fraud risks are immediately detected and mitigated.

ACL added that in highlighting the top categories of fraud likely to be prevalent throughout the year, it aims to assist customers in narrowing the focus, so that resources can be applied where the need is greatest.

The ‘top three’ are as follows:

  1. Fraud designed to mask bribery: As regulatory enforcement of bribery and corruption laws increases worldwide, internal controls are bound to tighten, leading to heightened efforts among dishonest employees to hide qualified bribe activity through elaborate schemes, such as invoicing kickbacks, falsified vendors, and bid rigging. ACL considers Foreign Corrupt Practices Act (FCPA) compliance to be a key area of concentration and it’s critical that this realm of exposure is taken into account when executing a 2014 risk assessment and controls plan.
    The group recommends that the impact of tighter bribery controls should be taken into account when assessing an organisation’s third-party vendor management processes. This can be done through use of trending to identify unusual activity, such as large payments to consultants that coincide with contractual agreements.
  2. Inflated performance in the financial services sector: As performance in financial services continues to strengthen, the level of fraudulent activity will follow suit. Novel technologies and larger data volumes provide a new toolset, enabling financial professionals to conduct activities in gray areas of fraud as a way of deceptively driving performance.
    The group recommends a review of the control framework for management of banking or securities risk and considering the implementation of analytics that evaluate unusual patterns in activity
  3. Asset and revenue deception within financial statements: As merger and acquisition (M&A) activity becomes increasingly frothy, fraud among companies in search of a buyer or those looking to undertake other types of equity events will be on the rise. Revenue and asset pumping through timing schemes, channel stuffing, and other, similar manipulative methods will be enacted to take advantage of unusually favorable market conditions.
    The group recommends conducting a complete risk assessment of all material asset and revenue accounts by profiling transactions and identifying indicators of potentially suspicious behaviour, which should lead to detailed reviews of suspicious accounts that are identified. 

“The US Justice Department has recently placed a strong focus on the actions of companies doing business in countries that are at high risk for corruption, causing this to be number one on our list,” said Ross Paul, vice president (VP) of Go to Market & IT at ACL. “We expect to see FCPA fines breaking record amounts this year, with large tech companies settling penalties in excess of US$100m.”


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