Blog Marcel: Fraud surveys are perfect lesson material

When I start a new lecture series, I always tell my students to pay close attention when following the news in the coming weeks. I ask them to be alert to news items that deal with the topics I will take my students through in the coming term: fraud, money laundering and other integrity breaches. I then ask if they happened to catch anything about current affairs on those topics that week. It usually yields little response. So I tell them what I noticed in the news that week. Not infrequently, this costs me fifteen minutes of teaching time. But then I often get their attention very quickly. Students quickly become aware that the topics mentioned are the rule rather than the exception. That the lesson cycle is about a major social problem. A problem that leads to annoyance, fear, inconvenience, considerable damage and huge enforcement costs.

Many enter the classroom enthusiastically in the weeks after the first lecture, and some students cannot wait to talk about 'the fraud news of the week'. This often involves topics that are close to the youth: rumoured transfers at sports clubs, crypto fraud, cybercrime, identity fraud and greenwashing. Accountancy students are keen to discover what their profession should and can do to detect and prevent fraud, while criminology students are more interested in, for example, the various manifestations and offences, the characteristics of offenders and the role of whistleblowers.

As teaching material, I regularly prescribe a recent fraud investigation report. For example, the annual Report to the Nations by the Associaton of Fraud Examiners (ACFE). This originally US-based organisation is active worldwide in training fraud examiners and spreading the message that any organisation can be affected by fraud. The ACFE therefore emphasises the importance of fraud alert, fraud expertise, fraud prevention, fraud policy, fraud insurance and fraud investigation. Every year, the ACFE collects global case histories - the latest report covered 138 countries - which its fraud investigators examined. This provides a good and practical insight into the nature and extent of fraud, its harmful effects, characteristics of fraudsters, new manifestations and trends. Information that is important not only for fraud researchers, but of course also for organisations that may be affected by fraud.

That is - unfortunately - every organisation: from small to large. The latest report shows, for example, the importance (and failure) of internal management and control measures. Of the more than 1,900 cases assessed, 32% had deficiencies in those measures and 19% were in breach of existing measures. These include, for example, the lack of adequate procedures and segregation of duties. But also the careless handling of passwords and data security. Or employees and management not complying with or completely ignoring the measures and procedures designed on paper.

But similar reports also appear closer to home. For example, market research firm MetrixLab, in collaboration with Allianz Trade, published a 'Study on fraud and scams within the Netherlands & Belgium' in May 2024. A study focused on different forms of fraud, the damage suffered by organisations and the measures taken by them. The results provide a picture of the resilience and vulnerability of organisations in the Netherlands and Belgium. The survey involved 200 organisations in the Netherlands and 150 in Belgium (distribution: 40% Business-to-Business, 40% Business-to-Consumer and 20% government & non-profit). Their annual turnover was at least €10 million and 90 % had at least 50 employees. The respondents were mainly CEO, CFO, controllers and HR managers, all with risk management responsibilities.

Despite perceived security, many organisations see fraud as an increasing risk. For instance, with ever-increasing digitalisation, committing fraud is becoming easier and working from home (partly due to higher automation risks) is seen as an increased risk. It is notable that organisations fear hacking, phishing and data leaks, for instance, but that despite this, cyber insurance is less often taken out than fraud or directors' liability insurance. Moreover, not every cyber insurance policy covers all the risks of the digital society.

When it comes to fraud prevention, it is good to understand the cause of fraud. The survey shows various causes, for example: financial problems of the fraudster (36 %), opportunity (27 %), the fraudster's spending pattern (21 %), resentment/understanding (18), dissatisfaction with the reward (14 %) and addictions (10 %). Sometimes (10 %) there is no damage, often it is minor (33 % under €50,000), but 30 % of frauds exceed €100,000. In terms of preventive measures, it is positive that 74 % of organisations have a fraud risk analysis carried out.

Attention to fraud and fraud investigations is not just something for colleges and students. As mentioned, any organisation can be affected by fraud. Therefore, investigations such as those conducted by the ACFE and MetrixLab/Allianz Trade, should be periodically on the agenda of directors. As should fraud risk analysis, fraud prevention and the dangers of ever-increasing digitalisation. You can think you are safe, but that does not mean you are actually safe. Complacency and passivity are inappropriate in this regard. In short: the conversation about fraud between directors and supervisory directors, with in-house and external specialists and experts is necessary. After all, you don't want to be the next person to be highlighted as duped by fraud in news reports only to be served up as a case study in my lectures, do you? You are hereby warned!