Ernst & Young forum unites industry leaders to discuss anti-fraud strategies

Representatives of the financial services sector converged recently at a high profile forum organised by Ernst & Young at the Cinnamon Lakeside to discuss insights into anti-fraud strategies. The breakfast forum attracted senior officials from Sri Lanka’s financial services, usually the sector most vulnerable to fraudulent activities.

The keynote address at the event was delivered by Philip Rodd, Partner, Ernst & Young Hong Kong and the Risk Leader for Ernst & Young Hong Kong and China. He counts over 22 years of experience in accounting and risk management.

The presentation was followed by a Q&A session which witnessed the participation of Phillip Rodd, Asite Talwatte and Manil Jayasinghe, both Partners at Ernst & Young, and Manhim Yu, Director – Fraud Investigations and Dispute Services – Ernst & Young Hong Kong, who is a Certified Fraud Examiner (CFE) and a Certified Anti Money Laundering Specialist (CAMS), with over 13 years of experience in financial crime, banking fraud, anti-money laundering and corruption investigations.

The panel  at the forum concurred that fraud risks, the abuse of access to customer data resulting in direct theft from customer accounts, unauthorised trading, circumventing of processes/procedures for cash inducement and mortgage fraud were alarming concerns for them. This timely forum sought to share insights about different anti-fraud practices that can be successfully adopted by companies.

In his welcome address, Manil Jayasinghe stated: “Today’s economic environment is fraught with fraudulent activity and organisations should continuously assess fraud risk and combat fraud. Companies should instil a collective culture of risk management with particular focus on fraud and corruption, as fraud awareness within an organisation is key to dealing with fraud.

“It is better to be proactive rather than reactive. However, once a fraud has occurred, the investigations that follow should be conducted by those possessing the right expertise, as it is a highly specialised job.”

Meanwhile, Rodd said, “Although fraud programs may be available at banks and financial institutions, there is definitely room for improvement. In addition to the actual loss that is suffered, there is always the reputational impact to be considered.”

Quoting from research conducted by the Association of Certified Fraud Examiners he said that the average armed robbery nets approximately US$ 65,000 with an 82% probability of being caught, whereas the average fraud nets around US$ 685,000 with a 2% probability of being caught.

Focusing on market realities, he stated that organisations are exploring new business lines and scouting emerging economies, together with greater use of online processing. Such rapid expansion of businesses provides opportunities for fraudsters to manipulate the system.

Focusing on fraud specific to the banking sector, Rodd cautioned that areas such as lending have a high risk of asset misappropriation as a result of document falsification, collateral schemes and the embezzlement of securities from the bank’s depository due to ineffective operations.

He also shared some ideas on how fraud investigations should be conducted and reported. The first step is to take preventive measures against fraud and detect areas of vulnerability before fraudsters can attack.  However, in his experience, banks focus on back-end fraud investigations rather than proactively investing in detection and prevention programs.

“It is essential to have a strong anti-fraud program in place, which requires the implementation of appropriate policies and procedures to combat fraud, including the conducting of fraud awareness programs and training – which should be tailor-made for different levels of employees to recognise red flags and fraudulent activities while adhering to regulatory requirements. The proper screening of customers and vendors should also be followed as a part of the anti-fraud program,” he stressed.

Asite Talwatte, Country Managing Partner of Ernst & Young, Sri Lanka, focused on fraud in the local context, saying, “In the Sri Lankan context, the criminal prosecution is taken up by the police. However, the fraud response team or internal investigations division of the given company will often carry out their own investigations and dismiss the perpetrators.”

Adding further value to the discussion, Manhim Yu noted that a company’s first priority would be to protect its interests, in terms of its reputation and financial damage. This is why, he stressed, investigations carried out by the organisation’s fraud response team is very important internally, as it can help the organisation understand what went wrong and the extent of the fraud loss suffered.

This will also enable the organisation to be better prepared to anticipate and deal with the impending action, in terms of the criminal proceedings as well as to strengthen fraud preventive controls. However, it is imperative that the internal investigators follow the proper protocol in preserving the evidence. Such investigations should be carried out by a team of professionals who know how to handle the preservation of evidence and internal records.

Averil Ludowyke, Partner, Ernst & Young Sri Lanka, who works closely with clients on fraud prevention and fraud investigations, stated that the senior management of a company is responsible in setting the tone at the top and should strongly communicate their ‘zero tolerance to fraud’ stance. She stated that it is important that the commitment to anti-fraud policies should be clearly demonstrated by supporting initiatives to manage fraud risks.

In conclusion, there was strong agreement among the panel at the Ernst & Young Forum and they were unanimous in their view that boards and audit committees need to remain cautious. It was suggested that developing channels of communication across finance and other functions will help boards ensure that measures to mitigate fraud risk are firmly in place.