Red Flags and Due Diligence to prevent fraud risk

The evolution of compliance management systems, as well as the tendency of organizations to create compliance and risk prevention offices, to promote integrity and transparency, places the already well-known Compliance Officers in the crosshairs of developing a corporate strategy that allows evaluating the trust of collaborators. Let us remember that the fraud triangle created by the criminologist Donald Cressey in 1961, highlights that a fraud scheme can occur when 3 main variables are combined: motivation, the justification that the wrong conduct is acceptable, and the opportunity to commit it. Aggravating the scenario, the “professionals” of cybernetic illegality use the latest technology to commit crimes, even with greater economic and reputational impact.

ACFE, in its annual publication called Report to the Nations, highlights that the riskiest employees present certain red flags prior to committing crimes. These top alerts range from people living beyond the means to employees with family problems or recent divorces; being the areas of greatest risk where these alerts are presented: operations, accounting, and sales.

Solutions? Implementation of due diligence processes for employees, dissemination of codes of ethics with an anonymous complaints channel, graphological evaluations, deception detectors or automated artificial intelligence polygraph such as Eyedetect, and not only at the beginning of an employment relationship but also throughout the time (monitoring), since the fraud triangle can appear at any moment.

By Daniel Calderón, Ing. CPA. MSC. AML-CA