RiskFinancial CrimeEight Corporate Risk Hot Spots ‘to Intensify in 2013’

Eight Corporate Risk Hot Spots ‘to Intensify in 2013’

Eight corporate risk ‘hot spots’ will confront management in 2013, according to corporate risk prevention consultancy Riskskill.

The firm, a division of UKFraud, identifies the eight as follows:

Likely to reach increasingly high levels as a reflection of economic conditions. Supply chain fraud will be a major growth area, as squeezed suppliers face temptation to cheat, often using IT systems to cover their tracks.  This type of fraud can range from simple ‘weights and measures’ issues through to credit-based fraud and professionally-planned attacks. As a result, procurement fraud is also set to reach record levels this year, where those charged with purchasing face a range of temptations, including bribes from suppliers. More generally, internal fraud is also running at its highest level.

The UK government’s National Fraud Authority’s (NFA) annual survey of fraud has, for the past three years, reported estimated fraud losses that are, in general terms, doubling each year. The fraud prevention market is braced for a repetition of this trend with an increase in the estimate of fraud losses expected again.

Cyber Crime Attacks:
Intrusions will remain an on-going concern in 2013, with the daily number of automated attacks on bank and retailer systems already running into millions. Corporations trading online are especially vulnerable, as customers are faceless and there is comparatively little time to check the efficacy of the client’s details. Controls over ‘apps’, such as payments through mobile and NFC (near field communication) devices are also on-going risks. Technically skilled fraudsters and self-styled cyber-warriors love such conditions and it is a constant race for ‘switched on’ payment processors to find the ‘security holes’ before such people actually cause havoc.

With much high quality customer data reaching criminal hands and seemingly frequent high-profile data-security breaches through cyber-crime, 2013 will see a greater emphasis placed upon Payment Card Industry Data Security Standard (PCI DSS) and other data security and integrity issues, as well as continuing government interest in discussing this subject.

Social/Media-Related Risks:
The huge rise in different types of mobile device platforms and the corresponding growth of social media sites poses a huge reputational challenge for corporations. Within minutes, organisations can be the victim of blistering customer backlashes which might or might not be justified. Many corporations are making a start by attempting to formally control how their own employees release company or workplace information through social media. The number of reported dismissals and legal cases for acting irresponsibly through social media is soaring. However, beyond this there are increasingly huge risks posed by being seen to ‘get it wrong’ at the social-communications front line. 2013 could see a significant rise in the ownership of social media policy by corporate communications management.

Silo Mentality:
A desire to conduct business correctly has spawned increasingly complicated silo structures in the corporate world, with the corporate tsars of compliance vying for power with those running policy, risk and traditional management functions such as IT and finance. It is possible that key decisions such as fraud policy will fall between these silos so that one either finds managers that are only partially responsible for an issue or a whole gaggle of managers who all claim ownership. The only solution is to have cross-function internal teams working closely with non-execs to allocate and refine roles and responsibilities.

Big Data Risks:
  As a result of corporate compliance and customer contact drives, organisations hold increasingly huge volumes of data such as customer files; a development that poses its own data breach risks. However, the evolution of the ‘big data’ culture will also deliver huge benefits in 2013. Recent improvements in business intelligence (BI) and data analytics technology have delivered significant benefits for those working to manage big data projects along with those focused on the risk and compliance issues raised.

Companies can monitor hundreds of millions of transactions continuously for patterns of potential fraud, cyber-attacks or money laundering. Often this is happening at speeds many times faster than even a year ago. It also allows marketing professionals to make more incisive assessments of customer behaviour and to tailor and fine-tune campaigns accordingly.

Credit Risk Losses vs Profitable Lending:
Banks and organisations such as retailers are under pressure from shareholders, the media and wider stakeholders to avoid bad debts, while increasing profitable business lending. There is a potential risk of a lose-lose situation developing where once again such pressure leads to bad financial products and  the risks of mis-selling and  bad debts from overstretched customers.

As an example, store finance schemes and other ‘loyalty’ lending products face mounting credit exposures and losses through debt defaults, and write-offs.

Legal Claims:
Whenever there is a downturn in the economy, people seek legal redress. The insurance industry and local authorities, tired of the ‘slips and trips’ type scenario, are fighting the continual rise in these cases. However, many organisations seriously underestimate how big the potential legal risks can be. They are likely to face even greater pressure on this front though in 2013, as the TV ad style accident and personal protection insurance (PPI) lawyers start looking for the next big thing.

Environmental, Corporate Social Responsibility (CSR) and Sustainability Risks:
Investment in environmentally friendly and wider social responsibility issues and other sustainability initiatives are often finely calculated parts of a wider corporate score-card. In more difficult economic times, these broader social and ‘green’ initiatives can suffer; financial commitment made in good times can also damage the longer-term investment, security and stability of businesses when things are tighter. So a longer-term balancing of the risks is required – i.e. the corporate social responsibility commitments flagged on the company’s website need to be measured against the real-life, long-term trading conditions. As reputation can be all, corporates must ensure that long-term CSR commitments are not ultimately suspended or frozen with the risk of damaging their hard-won reputations.

“From our research and experience of many businesses, we can see that most organisations are needlessly at risk in a number of areas,” said Bill Trueman, chief executive officer (CEO) of Riskskill. “Often the potential and consequential losses will be a major threat to businesses performance. To put them right and protect our businesses, we need to make sure that our processes, procedures and systems are clear, tight, ordered and well managed. “

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