Focus Needed To Stem Increase In Insider Fraud

Tough economic times can make employees commit fraud not only against their employers, but on behalf of their employers. A disgruntled worker, for example, might steal intellectual property for his own gain, but an employee could also bribe an official to win a contract for the company.

Yet increasingly the key component of fraud incidents is the insider, whether inadvertently or by choice. Overall fraud -- which includes not only stealing intellectual property theft and corporate data, but also corruption and bribery -- declined in the past year, but insider fraud increased as a proportion of all fraud, according to the Global Fraud Report, published by risk services firm Kroll. In 2011, 60 percent of all fraud incidents involved an insider, an increase from 55 percent the previous year.

"The fact that fraud attributed to insiders is on the rise is a reflection of an increasingly information-based economy," says Richard Plansky, a senior managing director in Kroll’s business intelligence and investigations practice.

Those numbers might be on the low side because the data is only for fraud where the perpetrator is known, according to Plansky, who believes that insiders are more able to elude an investigation.

Overall, the fraud picture is a complicated mosaic. The incidence of fraud decreased, with 75 percent of all surveyed companies admitting an incident in 2011, down from 88 percent in 2010. Yet more companies acknowledged concerns about fraud than the previous year, and those that did not invest in anti-fraud measures more often felt the pain of an expensive incident: Among companies that lost more than 10 percent of revenues to information-based fraud, only 42 percent had anti-fraud measures in place, while two-thirds of the surveyed companies had implemented countermeasures for information fraud.

"If you are the CIO of a company, the main takeaway is that anti-fraud measures pay," Plansky says.

Establishing good policies and reducing the complexity of a company's information infrastructure are two key measures that companies can take, according to the report. About 43 percent of all companies surveyed pinpointed IT complexity as the main reason their systems were still vulnerable.

Clients have argued just that point, says Guy Churchward, CEO of log management firm LogLogic. Most breaches and failures in security can be traced back to policies that were not followed, he says.

"These massive organizations create policies, lock down their systems, and then one person, by accident, leaves the latch open," Churchward says.

In addition to reducing complexity, monitoring and logging are key technologies for reducing fraud. Kroll also recommends that companies collect intelligence -- including background checks -- that could indicate when an insider might be likely to commit fraud. Finally, when an investigation is warranted, companies should be discrete and lock down evidence.

A key to investigating is to collect the data and organize it beforehand, says LogLogic's Churchward. By centralizing the massive amounts of data on employee behavior, companies can be ready to dig into the information for answers when an insider incident occurs, he says.

"You can take forensics analysis from a matter of days to a matter of minutes just by taking everything and putting it in a centralized store," he says.

By organizing the information needed to analyze an incident, IT teams can respond much more quickly when an incident happens.

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