Keeping up with the criminals is part of fraud prevention

Companies need to step up investments in fraud prevention to stay ahead of evolving threats.
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· 4 min read

Most people know by now not to donate money to or click links in an unsolicited email from a Nigerian prince, but as in any business sector, fraudsters can pivot to a new approach when an old one stops working. And when it comes to anti-fraud technology, they’re often a step or two ahead; experts tell CFO Brew that criminals have started to adapt to new fraud-prevention methods and tech as fast as they’re being developed.

How and where to spend money on fraud prevention continues to be a thorny question for CFOs, but standing pat isn’t really an option.

“It’s always a cat and mouse game, no matter what,” said Ben Ashworth, VP of marketing at Pi by Paytm, a digital fraud and risk platform. “It’s always, there’s a new technology that comes out and then the fraudsters…always figure out a way to take that new technology, dissect it, and figure out something new.”

Most companies will likely need to spend more on anti-fraud and compliance technology in the coming years. Companies that don’t invest in technology to protect their data and assets are not only vulnerable to hackers, but are likely to be eclipsed by their competition, according to Justin Beals, CEO and co-founder of Strike Graph, a compliance technology platform.

“It used to be that security was a liability issue; you didn’t want to be liable for doing something wrong. Nowadays, we’re seeing compliance as, if you have not solved for it, you may not be able to participate in the marketplace,” he said.

Brave new world. CFOs need to be vigilant against a wide range of fraud and compliance risks and the two often go hand in hand. Recent research suggests that organizations may lose as much as 5% of their revenues every year to fraud. And organizations face significant reputational and financial risk for non-compliance on a wide range of regulatory issues, from anti-money laundering to data privacy.

The Covid-19 pandemic created a tsunami of fraud according to a 2021 Grant Thorton report, and 71% of companies surveyed expected to see an increase in fraud in 2022. Concurrently, the regulatory environment is becoming more complex as governments are ramping up data- and privacy-protection laws.

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However, at the same time, anti-fraud and compliance technology has advanced significantly over the last few years, particularly AI and machine-learning tools, according to the Association of Certified Fraud Examiners (ACFE) “2022 Anti-Fraud Technology Benchmarking Report,” a global survey of anti-fraud and compliance practitioners.

The use of AI and machine learning in anti-fraud and compliance efforts are expected to double within the next two years, according to the ACFE. More than 40% of the organizations that ACFE surveyed said they expected to add “computer vision analysis, robotics, or blockchain/distributed ledger technology to their anti-fraud technology toolkit in the future.”

The ACFE also found that 78% of respondents said that budget or financial constraints were either a major or moderate challenge to implementing anti-fraud technology and that 60% of organizations surveyed expect an increase to their anti-fraud technology budgets within the next two years.

Patience, patience. However, just buying the technology isn’t enough to prevent data breaches or dissuade hackers from trying to find weaknesses. Organizations will need to be thoughtful and patient with anti-fraud and compliance technology investments according to Ashworth.

“You always have to be iterating, implementing new ideas,” he said. “We see this time and time again; it is a technology that’s just going to have to continue to evolve over time.”

Organizations should also be careful not to tackle too many problems or underestimate the amount of work that goes into implementing new technologies according to Beals. Especially when it comes to standards and compliance, organizations need to slowly build up capacities, he said.

“That’s a mistake to try and say, ‘I want to solve this once and, therefore, I’m going to try and swallow the biggest, hardest standard, right now,’” he said. “It’s much better to say, ‘Can we roll this out? Let’s get our security posture in place. Let’s do a small standard.’”—DA

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The latest news and insights corporate finance professionals need to know to keep up with their constantly evolving industry.