Detecting, investigating and preventing fraud: Can it truly be prevented?

Mark Kaplan and Elin Cherry

Journal of Financial Compliance, 2018, vol. 1, issue 4, 314-327

Abstract: Employee fraud and conduct failures have caused some of the largest losses suffered by financial institutions, and led to the departure of several very well-respected CEOs and other senior management at those institutions. That includes the rogue trading incidents at UBS, Société Générale and Kidder Peabody, and the more recent conduct issues arising from the so-called rates manipulation cases and the account opening issues at Wells Fargo. Building an effective programme for the detection, identification and investigation of those risks is a crucial priority for all financial institutions. This paper reviews some of the most prominent incidents of employee fraud and conduct failures, and the important lessons learned from those incidents. Based on those events, this paper outlines the essential foundational elements for building an effective enterprise-wide monitoring and detection programme, including the type of organisation, skill sets, governance, tools, processes and culture one must have in place. The paper also focuses on some of the new technology tools available, including AI, natural language processing and data analytics, which will greatly enhance the ability of control departments such as Compliance, Risk and Internal Audit to detect and identify this activity.

Keywords: conduct risk; fraud risk; compliance; enterprise risk governance; compliance technology and innovation; risk assessment process (search for similar items in EconPapers)
JEL-codes: E5 G2 K2 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:aza:jfc000:y:2018:v:1:i:4:p:314-327

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