Fraud Against Corporations

The pundits who monitor such things agree corporate fraud is on the rise.  Reports from Deloitte, PWC, Kroll and others who peddle services designed to detect and prevent such fraud say, perhaps self-servingly, fraudulent attacks on business are on the rise.

Much of the fraud in these reports involves employees cheating their employers or hackers attacking companies.  Just last week, for example, the Financial Times reported companies have been victimized to the tune of $2 billion by the CEO email scam in the last two years. Technology is a major reason for the increase in cyber crime and this, in turn, has created a whole B2B industry around security.

Fraud by Corporations

Another form of corporate fraud interests me more:  that is fraud knowingly committed by a company against its customers (either other companies or consumers). It’s hard to know if this type of corporate fraud is on the rise, as statistics are not easy to find, but it sure seems like it.  Kroll’s recent report on Global Fraud reports vendor, supplier or procurement fraud affected 17% of companies in the last 12 months–the second highest form of fraud after theft of physical assets.

Recent examples of fraud by corporations are rampant:

• The various mortgage-backed security cases (settled for billions)
• Volkswagen’s diesel emissions results (which used software to fool regulators)
• In the food industry, we read about adulterated olive oil, grated parmesan cheese that contains 10% wood pulp, and misidentified fish species.  (I could provide many more examples from my years in the food testing industry, but will spare you.)
• “Reordering”  by banks to maximize overdraft fees
• Shall we include Theranos, the blood-testing company in this list, or is it too soon?

Also note that in at least two of these cases, software is used to perpetrate the fraud, rather than prevent it!

If you are like me, and I hope you are not, you assume you are being cheated by the companies you deal with, it is only a matter of by how much!

Industrial Revolution 4.0 the Corporate Fraud Rescue?

I’m on the lookout for companies using the so-called Industrial Revolution 4.0 (e.g., cheap sensors, better testing technology, the cloud and big data) to fight fraud, not add to it!!

Credit card companies fight fraud by monitoring purchases and inserting EMV chips into our credit cards.  Companies like Card Integrity help companies monitor credit card and travel fraud, as do some of the T&E vendors, though the industry is still in its early phases.   Most of this technology is oriented toward the fraud perpetrated against companies or taxpayers.

Palantir has built a gigantic company, based in part on detecting fraud and criminal activity. And there is a whole Governance, Risk, and Compliance (GRC) industry, though much of it seems to be about collecting documents, rather than analyzing big data.  There are also many applications oriented to supply chain risk, but those applications are typically oriented towards, geographic, political, or corporate social responsibility risk, rather than fraud.

Exostar and Covisint, both former marketplaces, have morphed into security and authenticity verifiers for the supply chains of the Aerospace and Defense, Auto, and Pharmaceutical industries.  I hope we see even more applications to detect or prevent corporate fraud in the supply chain.  Unfortunately, the fraudsters among us keep creating a real need for such solutions.