Over the years, many embezzlements have been discovered in Israel. Most embezzlements are discovered by chance as a result of the embezzler’s dismissal, an unusual external event such as coronavirus or war, a bank report of a discrepancy, a request from a supplier, etc. The question arises as to why, despite awareness of the risk of embezzlement and improved control and supervision processes and a transition to computerized work processes, most embezzlements are still discovered by chance? The answer to this statistic lies in the fact that most organizations do not invest resources in searching for red flags and anomalies that could indicate the existence of embezzlement in the organization, as well as the lack of control over employee onboarding processes.
The importance of background checks in hiring employees
Today, most organizations hire employees without conducting any background checks on the candidate, their employment history, and their financial situation. Given the fact that most embezzlement stems from financial problems, this information is of enormous importance in preventing embezzlement. Checks such as restricted bank accounts, pending enforcement cases, and lawsuits are simple and can help detect financial problems. In addition, organizations often do not request credentials from candidates and are content with conversations with employers that the candidate provides without conducting independent checks. Reliability tests such as graphology, computerized tests, and questioning by professionals can help detect reliability problems in the candidate. Although conducting such tests involves costs, the damage caused by embezzlement can be much greater.
Analyzing trends and exceptions: the key to detecting embezzlement
The second part of fraud prevention is analyzing trends and anomalies in the organization’s data. Even though all the information is available within the organization, most organizations don’t invest time in analyzing the data and identifying red flags of fraud. In my experience, most fraud can be detected if you look in the right place.
Recommended tests for detecting embezzlement
Below are a series of tests that can help detect embezzlement by employees and external parties:
- Creating balances and transferring them to effective suppliers/collaborators
- Currency differences
- Realization of customer balances
- Failure to redeem credits
- Withdrawing funds from the bank and performing bank reconciliation against improper GL cards
- Unusual journal orders such as customer to customer, vendor to vendor, expense to bank, income to transit card, etc.
- A bank account identical to the provider and working
- Frequent changes to a supplier’s bank account
- Locating checks in the name of employees
- Suppliers with the same address
- Decrease in cash payments and increase in checks
- Payment to different parties with the same bank account
The solution: Fraud detection systems
The question is why do organizations not implement systems that are capable of detecting these trends and anomalies? The answer in many cases is a lack of awareness and in other cases the absence of a central factor that addresses this risk. Today, there are many tools that can help an organization detect anomalies in real time while sending targeted alerts about anomalies and red flags.
Advantages of fraud detection systems
Fraud detection systems are based on databases as broad as possible. In this way, they allow for cross-referencing of data between a large number of factors while looking at unlimited time ranges. In this way, the world of control takes on many dimensions that manual or automatic control do not handle. For example, if we consider the entry of a duplicate invoice into the system, all ERP systems know how to alert the user or stop, but what if we add an asterisk or digits before or after? Will manual control be able to detect this?
AI, Machine Learning and Fraud Detection
Fraud detection systems use Machine Learning, thus presenting a broader picture of alerts, based on machine learning, that presents cases that are not absolute. When we know an operational / accounting / process event, it is easy to write a test on the event, but do we know all the events in all organizations that have different working methods? Therefore, using Machine Learning allows us to get out of the box in many cases.
Challenges in implementing fraud detection systems
One of the challenges in implementation is to accurately calibrate the system, in order to reach at least 90% accuracy in alerts to reduce review times to a minimum, and the confidence in relying on the systems. The systems do not know the people or processes that are appropriate for each company, so it is important that a content expert implements the system according to the organization while understanding processes, journal commands, records, operations and where mistakes occur and where improvements can be made.
Protect your organization: Your next step
Fraud and embezzlement are a significant risk to any organization, but with the right tools and approach, they can be effectively prevented and detected. Advanced fraud detection systems, such as Detelix , provide a comprehensive solution that combines innovative technology with years of practical experience. We invite you to take the first step in protecting your organization.
Contact us today to schedule a no-obligation, personal consultation.
Our experts will be happy to analyze your organization’s unique needs and offer customized solutions.
Together, we can build a strong defense system that will ensure your organization’s financial and operational integrity.
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