BPM Analytics
How fraud damages your business beyond financial losses?
Any business can be susceptible to fraudulent activity, with significant financial losses being the most obvious consequence. However, loss of revenue is just the tip of the iceberg. Businesses that are victims of fraudulent activity can face a host of repercussions, including damage to their reputation, demoralised employees, reduced customer trust, damaged relationships, etc.
A recent survey conducted by the Association of Certified Fraud Examiners (ACFE) analysed data from over 2,000 real-world fraud cases spanning 133 countries and 23 industries. According to this report, occupational fraud causes annual losses of more than $4.7 trillion globally, and organisations lose about 5% of their revenue to fraud each year. In a worrying trend, several organisations cite that regulatory changes have not been very effective in tackling fraud, leaving organisations to their own instruments in the fight.
Even if a business is in a position to recover from the initial financial blow, the broader consequences can be crippling in the long term.
Uncovering the hidden costs
Businesses that don’t proactively take appropriate fraud prevention measures are exposing themselves to potentially catastrophic repercussions. To better understand the true cost of being a victim of fraud, it is necessary to consider how it affects the health of a business in the long term, both financially and otherwise.
Being a victim of fraud can also have a severe psychological toll on leadership as well as employees, as the stress and apprehension of coping with the aftermath can impair the decision-making process.
Financial impact
The financial impact of fraud extends beyond the immediate losses incurred. An organisation often must direct funds towards investigating fraud, implementing corrective measures, and dealing with potential legal consequences. These efforts strain the financial resources and distract business owners and staff from the management of core business processes. During this period, a business can experience downtime that not only affects the bottom line but also affects employee morale and customer relationships, leading to further financial losses.
Reputational harm
Being a victim of fraud can have the unfortunate side effect of damaging an organisation’s public image and perceived trustworthiness. According to a leading consulting firm’s survey in India, as much as 72% of the organisations surveyed consider reputational damage the most concerning impact of fraud. Brand damage also negatively impacts customer loyalty. Rebuilding this trust and restoring a damaged reputation is an arduous and often expensive exercise.
Customer churn
ncreasing reliance on digital tools and data has jeopardised customer privacy to an unprecedented level, leaving customers hyper-alert and averse to trusting businesses in the wake of fraud. Customers lose faith in a business after a fraud and subsequently choose to take their business elsewhere. This results in a significant deterioration in customer experience and businesses having to direct resources towards acquiring new customers.
Legal and compliance issues
Regulatory non-compliance stemming from a fraud event can invite fines, penalties, or even lawsuits. While it is clear that fraud warrants legal expenses, the vicious cycle of reputational damage, expenses in regulatory assessments, and patching cracks in the system could also set the company back thousands of dollars.
Workforce morale and efficiency
Fraud impacts the morale of employees, reducing their efficiency and lowering productivity. This can also lead to increased employee attrition, prompting the need to recruit and train new staff, which comes with its own costs.
Technology in fraud detection and deterrence
To reduce the chances of becoming a victim of fraud and to avoid brand damage, organisations need a structured and automated approach to detecting fraud early and identifying and addressing the root causes. Modern fraud detection services leverage deterrence measures based on the premise that fraudulent activity occurs when motive, opportunity, and rationalisation line up to create a situation conducive to committing fraud. The elimination of any one of these factors greatly reduces the likelihood of fraud.
Protective measures work towards identifying these factors to uncover and mitigate potential risks before any damage is done. To that effect, fraud detection services can deploy industry-specific systems across healthcare, procurement, insurance, and most of all – financial services. Robust fraud detection and prevention infrastructure is comprised of state-of-the-art AI, ML, and biometrics tools that provide access control, pattern recognition, rule-based fraud prevention, and fraud risk management systems.
How can Infosys BPM help with fraud impact mitigation?
The fraud detection services offered by Infosys BPM employ cutting-edge fraud prevention analytics with AI, ML, and automation to help businesses analyse large datasets to detect and safeguard against potential fraudulent activity.