Fraud is estimated to cost businesses around £200 billion per year in the UK. Fraud risk management is the process of analysing a firm’s operations in order to locate any potential gaps in their security that could leave them open to fraudulent activity.
Even though it’s simply moving with the times, the more businesses adopt online functionality, the more it empowered fraudsters. They often pride themselves on being one step ahead of fraud prevention methods. This is what makes a consistent fraud risk management strategy all the more important.
When it comes to fraud risks, it is important to remember that damaging activities can come from all directions, including from within. It is not unheard of for a company employee to defraud their bosses or the business they are employed by out of significant amounts of money. This potential source of fraud can be the most difficult to guard against. However, fraud risk management can plug up possible gaps in your security and ensure you are as protected as possible.
The prevailing theory about how fraud risk arises is set out in the Fraud Triangle methodology. This framework is used to explain the core motives behind any fraudulent activity. The Fraud Triangle outlines three components that can increase the risk of fraud — opportunity, or the ability to commit fraud; rationalisation, the point where fraud is seen to be ‘acceptable’ by those dealing in it; and pressure, an individual’s need to commit fraud due to outside factors.