A
new strategy in combating fraud: Will it work?
Hendi Yogi Prabowo,
THE DIRECTOR OF THE CENTER FOR
FORENSIC ACCOUNTING STUDIES AT THE ISLAMIC UNIVERSITY OF INDONESIA, YOGYAKARTA;
HIS MASTER’S DEGREE AND DOCTORATE FROM THE UNIVERSITY OF WOLLONGONG, AUSTRALIA
Sumber
: JAKARTA POST, 4 Januari 2012
Recently, Bank Indonesia
issued a circular on the implementation of antifraud strategies for commercial
banks. Many see this as a reaction to the recent spate of banking fraud cases
in Indonesia that threaten the reputation of the nation’s banking system.
Essentially, the circular established an obligation for Indonesian banks to have in place an antifraud strategy covering four pillars: prevention, detection and investigation, reporting and sanctions.
Failure to fulfill the obligations will result in sanctions from Bank Indonesia. The strategy is intended to combat offenses such as trickery, asset embezzlement, information leakage and banking crimes, to name a few.
As evidenced in, for example, the Citibank fraud case, customers often become the ones who bear the consequences of insufficient antifraud measures. Their trust was misused by corrupt bankers to obtain unlawful benefits. For this matter, customer awareness is of importance in combating fraud in the banking industry.
The circular gave a place for customer awareness in the program’s first pillar, prevention. On the other hand, from offender’s side, many recent fraud cases were perpetrated by bankers themselves who presumably understood internal systems well and knew where to find weaknesses.
For this issue, the circular highlighted the importance of the “Know Your Employee” policy, covering areas such as recruitment procedures, position selection systems and employee monitoring, including monitoring of people’s character, behavior and lifestyle.
This personal oversight is necessary. Fraud studies suggest that there are often “red flags” associated with personal behavior, such as “wheeler-dealer” attitudes, an unwillingness to share responsibilities and living beyond one’s means.
As suggested by the ACFE’s global fraud studies, the most common means by which fraud is uncovered is by “tips” or inside information. The circular also emphasized the importance of having whistle-blower system as part of an organization’s anti-fraud strategy.
The system must include elements such as whistle-blower protection, a fraud reporting mechanism and a response mechanism for fraud reports. Such a system must be transparent, consistent and trustworthy to ensure its effectiveness.
A major challenge in establishing such a system is that generally the effectiveness of whistle-blowing in Indonesia is not yet adequate. Many people who know about fraudulent acts within their organizations are reluctant to say anything about them due to the fear of negative consequences. This requires banks to first build a culture of integrity and transparency within their organizations so that employees will have the willingness and courage to report any misconduct in their workplace.
An important principle in the science of crime prevention is that “a good crime prevention practice is one that is problem based, not practice based”. Under this notion, an important prerequisite in understanding the real problem is the availability of reliable crime data as the basis for the decision-making process.
The circular creates an obligation for commercial banks to report fraud incidents to Bank Indonesia in a standardized format that will make, among other things, trend analysis possible. Nevertheless, it does not say anything explicitly about whether or not such information, or at least a summary of it, will be available for public.
In other countries, such as the US and the UK, although most fraud data (e.g. names of the offenders and victims) remains confidential, a summary of trends is commonly available to the public.
This will be part of the consumer education process to raise awareness regarding current fraud trends and available prevention measures. This is of importance since no matter how sophisticated the antifraud prevention measures in place are, so long as consumers are unaware of the threats that stalk them, they will become an “Achilles’ heel” for the entire system. Many fraud cases were perpetrated simply by manipulating human factors without the need to penetrate, for example, existing fraud prevention technology.
The next challenge is to socialize the new guidelines among Indonesian banks. Although the purpose of the circular is clearly for the benefit of commercial banks, designing and implementing an antifraud system may mean incurring additional cost for the organization.
It is understandably common throughout the world that organizations such as banks are often late in implementing anti-fraud systems simply because there is no “business case” to rush to do so. Therefore, Bank Indonesia’s next task should be to convince those who are still reluctant to make additional investments in antifraud prevention to do so immediately, before the Indonesian banking industry’s reputation is severely damaged by fraud.
Indonesian commercial banks must realize that although in the short term implementing a comprehensive antifraud system may affect their bottom line, in the long term the decrease in fraud losses as well as increasing trust from customers will benefit for the entire banking industry. ●
Essentially, the circular established an obligation for Indonesian banks to have in place an antifraud strategy covering four pillars: prevention, detection and investigation, reporting and sanctions.
Failure to fulfill the obligations will result in sanctions from Bank Indonesia. The strategy is intended to combat offenses such as trickery, asset embezzlement, information leakage and banking crimes, to name a few.
As evidenced in, for example, the Citibank fraud case, customers often become the ones who bear the consequences of insufficient antifraud measures. Their trust was misused by corrupt bankers to obtain unlawful benefits. For this matter, customer awareness is of importance in combating fraud in the banking industry.
The circular gave a place for customer awareness in the program’s first pillar, prevention. On the other hand, from offender’s side, many recent fraud cases were perpetrated by bankers themselves who presumably understood internal systems well and knew where to find weaknesses.
For this issue, the circular highlighted the importance of the “Know Your Employee” policy, covering areas such as recruitment procedures, position selection systems and employee monitoring, including monitoring of people’s character, behavior and lifestyle.
This personal oversight is necessary. Fraud studies suggest that there are often “red flags” associated with personal behavior, such as “wheeler-dealer” attitudes, an unwillingness to share responsibilities and living beyond one’s means.
As suggested by the ACFE’s global fraud studies, the most common means by which fraud is uncovered is by “tips” or inside information. The circular also emphasized the importance of having whistle-blower system as part of an organization’s anti-fraud strategy.
The system must include elements such as whistle-blower protection, a fraud reporting mechanism and a response mechanism for fraud reports. Such a system must be transparent, consistent and trustworthy to ensure its effectiveness.
A major challenge in establishing such a system is that generally the effectiveness of whistle-blowing in Indonesia is not yet adequate. Many people who know about fraudulent acts within their organizations are reluctant to say anything about them due to the fear of negative consequences. This requires banks to first build a culture of integrity and transparency within their organizations so that employees will have the willingness and courage to report any misconduct in their workplace.
An important principle in the science of crime prevention is that “a good crime prevention practice is one that is problem based, not practice based”. Under this notion, an important prerequisite in understanding the real problem is the availability of reliable crime data as the basis for the decision-making process.
The circular creates an obligation for commercial banks to report fraud incidents to Bank Indonesia in a standardized format that will make, among other things, trend analysis possible. Nevertheless, it does not say anything explicitly about whether or not such information, or at least a summary of it, will be available for public.
In other countries, such as the US and the UK, although most fraud data (e.g. names of the offenders and victims) remains confidential, a summary of trends is commonly available to the public.
This will be part of the consumer education process to raise awareness regarding current fraud trends and available prevention measures. This is of importance since no matter how sophisticated the antifraud prevention measures in place are, so long as consumers are unaware of the threats that stalk them, they will become an “Achilles’ heel” for the entire system. Many fraud cases were perpetrated simply by manipulating human factors without the need to penetrate, for example, existing fraud prevention technology.
The next challenge is to socialize the new guidelines among Indonesian banks. Although the purpose of the circular is clearly for the benefit of commercial banks, designing and implementing an antifraud system may mean incurring additional cost for the organization.
It is understandably common throughout the world that organizations such as banks are often late in implementing anti-fraud systems simply because there is no “business case” to rush to do so. Therefore, Bank Indonesia’s next task should be to convince those who are still reluctant to make additional investments in antifraud prevention to do so immediately, before the Indonesian banking industry’s reputation is severely damaged by fraud.
Indonesian commercial banks must realize that although in the short term implementing a comprehensive antifraud system may affect their bottom line, in the long term the decrease in fraud losses as well as increasing trust from customers will benefit for the entire banking industry. ●
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