Build your own Fraud Prevention and Detection strategy in 5 simple steps.

The risk being faced by businesses and organizations in this era is far higher than ever before. The reasons are many but the most prominent one is that criminals and money launderers are getting more familiar with the strategies and processes for detecting and preventing financial crimes. So, it has been observed in recent times that criminals are also finding some sophisticated ways to bypass and spoof compliance programs. 

The severity of the compliance program breaches can be understood by the Identity Theft Resource Center Q3 2022 report. According to the report, “nearly 105 million victims were affected by data compromises in Q3 2022”. 

A real-time fraud prevention and detection strategy is the way forward that can aid businesses and, particularly financial institutions to safeguard themselves against these matters. Though it is quite hard for companies to eliminate all sorts of fraud, with firm strategies, the firm can prevent the types of fraud it is at greater risk of. To accomplish this, it needs to implement a continuous risk assessment to ensure it follows the AML compliance program. This writing will discuss the five-step strategies for business fraud detection and prevention that comply with regulatory bodies’ requirements. 

Is there any connection between Fraud and Money Laundering?  

Fraud and money laundering are two different illegal activities that are, to some extent, directly connected. The person involved in any financial fraud that helps him illegally obtain money or manipulate the thing, just like the PEPs do using their influence, he will find some way to launder that illegitimate money to other destinations. The individual will try to use the legal banking channel to launder the money gained through fraudulent activities.

5 steps Strategies for businesses to detect and prevent fraudulent activities.

• Whistleblowing policy

Whistleblowing is an easy and crucial way to prevent misconduct inside the workplace. If the right person is chosen for such a policy and thus implemented in a perfect manner, it enhances the chances of detecting and preventing fraudulent activities. This can save businesses from being exposed to fraudulent activities due to correct information at the right time. 

• Identify the Risks

The risk of exposure to fraud does not depend solely on your client’s transaction history or your employees’ background. In fact, there are a couple of other reasons that could lead any business to fraud. No business can identify all the risks using a single approach, so you need to identify the risk based on the nature of the item.

For example; if you see a sudden increase in cash flow, product size, or quantity, you need to implement an extra layer of risk assessment. The other interesting thing is that if the employees are not happy with the workplace, there are many chances that they will be involved in fraudulent activity internally. Identifying the risk is more important because, based on the risk, you figure out how to counter it.

• Implement Effective Controls

This phase is considered the most important in preventing any crime. Before implementing any effective control, the important thing is to complete the action plan and assign it to the right person. The leadership in any business is often responsible for assisting with implementing it or, if necessary, seeing any changes required so that the final control can be sent to the relevant person.

• Develop a Comprehensive AML Policy

A comprehensive AML policy is the must-have strategy for fraud prevention. In this part, businesses need to clearly outline the procedure that will be used to detect and prevent money laundering or any other fraud. Customer due diligence and Enhanced due diligence must be implemented to verify the customer’s identity and risk level. This strategy also highlights the importance of guiding the employees on how to report suspicious activities to relevant authorities.

• Implement an Advance Monitoring and Reporting System

Considering the latest challenges businesses have to face to detect and prevent the challenges, leveraging the advanced monitoring and reporting system is essential for companies to detect suspicious activities. 

Fine-tune your Fraud Strategy 

Fraudulent activities never stop, they find different ways to haunt your reputation. Therefore, businesses need to invest in anti-money laundering technology, such as integrating an AML compliance tool. An advanced screening and monitoring tool, not only helps you screen against thousands of lists but also detects and prevents fraudulent activities in real-time.