Enhanced due diligence: A keystone in fraud risk management

financialexpress.com:

By KV Karthik

In the intricate tapestry of modern commerce, fraud presents a particularly insidious thread, woven stealthily into the fabric of everyday transactions. Fraud is an omnipresent risk. It is not just the monumental scandals that punctuate the headlines; frauds often lurk beneath the surface of routine business operations. 

Scandals in the fintech sector, where billions were found missing from trust accounts, exemplify the dire outcomes of deficient due diligence. Similar tales of woe have surfaced in the food and beverage industry, with instances of companies significantly fabricating sales figures, leading to monumental financial restatements and legal entanglements. The finance industry has not been immune to frauds, with the collapse of certain finance firms demonstrating the complex risks associated with opaque financial supply chains. 

This is where Enhanced Due Diligence (“EDD”) comes into play as a critical component of a comprehensive fraud risk management strategy.

An effective fraud risk management framework is a multi-faceted approach that encompasses a strong ethical culture spearheaded by leadership, periodic risk assessments to stay ahead of potential fraud scenarios, and a blend of preventive and detective controls to mitigate risks. It must include clear reporting mechanisms, including whistleblower protections, to ensure transparency and accountability. A well-defined EDD process, coupled with robust corrective actions, is essential to address and rectify fraudulent activities. Legal and regulatory compliance must be woven through each element of the framework, while external collaboration and advanced information technologies play a supporting role in fortifying an organisation’s defences.