Financial crimes remain a key risk for many businesses, whether in the form of cybercrime, bribery and corruption, internal fraud or money laundering. Some forms, particularly cyber breaches and insider threats, are seen as an increasing risk. As it stands, cyber security and increased regulatory scrutiny are drivers for businesses to invest in FDA tools. However, according to the researchers, broader benefits such as cost reduction are not being fully realised by organisations. Focusing the attention of management on the broad benefits of FDA is seen as one way of pushing strong capabilities as well as reducing costs.
Forensic data analytics (FDA) provides a range of tools that scan structured data for potential financial crimes. The process can be relatively complex and labour intensive, requiring a range of experts to work together to unearth patterns that point to fraudulent financial activity. Besides the medley of financial crimes that already exists, rapidly advancing technology is creating a new breed of cybercrimes, which too must be combated.In recent years there has been an increased incidence in successful cybercrime, resulting in high profile breaches. Regulators have started to focus on ways of reducing the exposure of consumers, while boards are seeking ways to reduce reputational damage and secrecy losses.
In EY’s recently released report, titled ‘Shifting into high gear: mitigating risks and demonstrating returns’, the consulting firm explores the way FDA as a means of detecting cybercrime is being used by organisations across the world. The report is based on a survey among 650+ executives.
Risks related to cybercrime are on the rise, the respondents highlight. 32% said that cybercrime risks are up significantly, while 30% say that they are up slightly. Bribery and corruption are also seen as increasingly problematic, with 17% citing significant increases to risks and 27% slight increases to risks. Internal fraud has also climbed up on the agenda, with 42% of respondents citing it as at least slightly increasing in risk.
As it stands, companies are using FDA predominantly as a means of identifying internal fraud (77%) and cyber breach or insider threats (70%). Bribery and corruption risk comes in third at 68% of FDA using respondents, while financial statement fraud comes in at 60% of respondents. The least, specific, use of the technique is merger and acquisition risk at 34% of respondents.
As cybercriminal activity increases, the generalised use of FDA in cybercrime detection is seen as the top drivers of the techniques adoption by 53% of respondents. Increased regulatory scrutiny comes in as the number two reason to adopt FDA according to 43% of respondents. Further drivers for the addition of FDA capabilities include increased risk of fraud in emerging markets at 32%, pressure from the board or management at 31%, and seeking greater cost efficiency in the fraud risk management process at 30%. The drivers cited least often are related to increasing calls to your “whistle-blower line” at 9% and increasing merger and acquisition activity at 13%.
According to the research the main perceived benefits of FDA has not changed significantly in recent years. In line with the survey findings from two years previous, respondents continue to identify the top three perceived benefits of using FDA in their anti-fraud programmes as ‘an ability to detect fraud that we couldn’t detect before,’ ‘early fraud detection’ and ‘faster response in investigations.’ EY suggests that the cost reduction benefits of modern FDA techniques are being missed by the respondents, with only 42% citing it as a main benefit.
While respondents cite a range of benefits to FDA capabilities, the survey also finds that there is a reluctance to invest. The respondents find that due to a lack of management buy-in around its potential return on investment, the technology is not finding its full potential. According to 68% of the respondents, the best way to remedy the situation is to improve management’s awareness of the benefits of FDA in the company’s anti-fraud programme. EY suggests that this recommendation includes making clear the full-spectrums of benefits that come with FDA programmes.