Technology can be both a tool for perpetrators of fraud, and for those trying to catch them. In a world dominated by screens and the internet, anti-fraud technology should be at the forefront of fraud prevention and detection methods. But, is anti-fraud tech being used to its full potential? Is the technology as effective as described? Most importantly, does it have an impact on fraud in businesses?
A 2019 report by the Association of Certified Fraud Examiners (ACFE) set out to answer these questions by surveying companies on their anti-fraud technology use. The report provides some key insights into the importance of anti-fraud technology, its challenges, and how it can be useful for your business.
Fighting Fraud with Data Analysis
Using data analysis in fraud prevention and detection is not a new practice. However, new technologies have made it easier to execute and more accurate than ever. For example, anomaly detection – a classic anti-fraud measure – was used by 64% of companies. The relatively recent machine learning or artificial intelligence methods is used by 13% of companies, with many more intending to join the trend in the years to come. There are many other advanced technologies – predictive analytics, social network analysis, sentiment analysis, text mining. These data analysis methods may not be widespread now but are likely to be adopted by many more companies within the next two years.
For data analysis to work, you’ll need a reliable source of data. That is where the trouble with this type of anti-fraud technology comes in. Companies may not have an effective data capturing process, and often only keep records in unstructured formats, which is typically more difficult to analyze. Fortunately, many companies (74%) reported using structured data in their data analysis programs. Other sources include public records (43%), law enforcement lists (32%), social media (29%), and third-party data (27%).
Data analysis technology is typically more effective than traditional methods, but it is not foolproof. Modern technologies are understandably more effective in tackling the volume of data companies deal with. Software is able to sift through masses of information, allowing companies to review more data than if it were completed by an individual. Data analysis software is also able to get through this data faster than any human ever could, making fraud detection far quicker than before. The processes are automated, saving valuable company time, and the results return fewer false positives by analyzing the data with greater accuracy. Although it cannot be 100% effective, up to 90% of companies reported new data analysis technologies were either very beneficial or fairly beneficial in the key areas of anti-fraud processes.
Emerging Technologies
Data analysis technologies are the most common, but not the only option for companies looking to adopt anti-fraud tech. Several emerging technologies are slowly gaining popularity and providing new avenues for fraud prevention and detection.
The most popular of these is biometrics, currently used by 26% of companies with 16% expecting to implement it in the next two years. Biometric software uses fingerprint or facial recognition to prevent access to company systems from any unauthorized parties. Advanced biometric software can scan calls using voice recognition, detecting any anomalies from clients or employees immediately. In the age of smartphones, behavioral biometrics has also been a useful tool by analyzing average typing speed and finger pressure to detect any new or unauthorized users. This has been especially helpful to banks verifying the identity of a cell phone user using their apps.
Another emerging technology building a name in the anti-fraud sector is blockchain. Blockchain was first developed to protect digital currency transactions, but companies have found it incredibly useful in protecting business transactions too. Some go as far as to say – when used correctly – blockchain can wipe out fraud in a company completely. Blockchain technology protects transactions and provides assurances for both parties. Using smart contracts, a buyer’s payment is withheld from the seller until the transaction is successful, meaning there is less risk on both sides of a transaction. Companies can use blockchain technology to verify every part of the supply chain process, ensuring the suppliers are following protocol and that a company is getting what they paid for. It can also be used in identity protection by giving the user a ‘digital ID’ that prevents identity fraud. Blockchain technology applications are numerous, and the potential to stop fraud massive.
Robotics and virtual reality are less common but have immense potential to stop fraud in the future. Robotic process automation (RPA) in finance and accounting can be used to process transactions, analyze data, and reconcile accounts. Not only that, RPA can execute a number of tasks, eliminating the need for more software. It can analyze data to detect anomalies, implement and monitor access controls to prevent unauthorized access to accounts, and encrypt data to protect information against cybercriminals.
The Challenges of Anti-Fraud Technology
The benefits of anti-fraud technology – emerging technologies in particular – are hard to deny. However, the implementation and use of these advances are not without challenges. The first is budget. 80% of respondents said budget was either a major or moderate challenge in implementing new anti-fraud technology. Companies struggle to allocate enough funds to fraud prevention or may not see it as a central concern and the high price of new anti-fraud technologies compounds that problem.
But budget is not the only constraint. The skills and limitations of in-house staff were the second-highest concern, followed by poor data quality. Due to the high costs, 69% of respondents believed the benefits of anti-fraud technology would not outweigh the costs and produce a reliable return on investment. The final challenges were legal concerns and excessive false positives.
Despite these challenges, companies are committed to spending more on anti-fraud technology within the next two years. Over 50% of respondents said their anti-fraud technology budgets would increase either slightly or significantly, with only 6% intending to decrease their budgets.
As perpetrators of fraud become more tech-savvy, companies should follow suit. Emerging technologies in the anti-fraud space provide numerous benefits and have the potential to limit fraud within companies. Implementing these technologies may be a knock to the company budget, but fraud can be too. If your company is consistently a victim of fraud, anti-fraud technology may be your answer.