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Operational Risk – The Intersection of Fraud and Compliance

Banks worldwide have a “Know Your Customer” imperative, which extends not only to risk and marketing but to fraud as well.  But what about knowing your staff?

In markets where unemployment is high and those employed face more limited options to change jobs or reap fiscal rewards, you start to see a “fraud triangle” of opportunity, motive and rationalization. Even long-tenured, trusted staff members sometimes find themselves pressured or tempted to leverage their position, typically for reasons of need or greed.

Historically, organizations would place responsibility for staff vetting with the Human Resources department; staff monitoring with line management controls; and oversight and investigation with internal audit.  But that model has been exposed and broken, many times and in many organizations. Today there is a drive toward convergence between risk disciplines and controls, and a need for clearer ownership and accountability of risk exposure and mitigation at a holistic level. Some of this is surrounded with regulatory standards and compliance, and some of it is stretching the knowledge and capability of hitherto “traditional” risk managers to the limit.

Source:  Bankinganalyticsblog.fico.com

BIIA Editorial Comment:  Catching employees with their hands in the proverbial till is not the only issue. There is also the issue of bribery and corruption.  For information companies there is the issues of how to prevented employees from bribing government officials to obtain data, or preventing employees from accepting bribes to alter data.  In the latter case, even China’s leading e-commerce giant Alibaba was not immune to such incidents. 
A measure of potential vulnerability can be gleaned from the rankings of Transparency International.  If bribery and corruption is rampant in a particular country, there is a likelihood of employees or partners being part of the culture.  Lack of vigilance in this regard could bring about dire consequences if a US based company fails to comply with the Foreign Corrupt Practices Act.

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