March 2, 2023 by Jason Contant
Three-quarters of small and medium-sized enterprises (SME) in Canada experienced fraud within the past year, even though nearly nine in 10 reported having a fraud prevention and response program in place, according to a new survey from KPMG in Canada.
Seventy-five per cent of more than 500 Canadian SMEs surveyed reported experiencing internal fraud (by an employee) or external fraud (such as credit card fraud, fraudulent cheques, false invoices, or identity fraud by hijacking bank accounts) in the past year.
“That’s despite the fact that 87% of businesses said they had a program in place to prevent, detect and respond to fraud,” KPMG LLP said in a press release Mar. 1, the first day of Fraud Prevention Month. “Interestingly, only 38% of businesses ‘strongly agreed’ and 49% ‘somewhat agreed’ with that statement [that they had a fraud prevention program in place].”
Clearly there’s a need for improvement, said Marilyn Abate, a partner in KPMG in Canada’s forensic and financial crimes practice. “Even though most companies have existing fraud programs in place, many of them are falling short.”
To complicate matters, scammers are becoming increasingly sophisticated, causing most organizations to look to new and emerging technologies as ways to reduce their risk and fend off potential attacks.
“The threat landscape is constantly changing, as fraudsters are continually devising ways to bypass and circumvent the prevention controls organizations implement,” Abate said. “So, even if companies think they have an effective anti-fraud program in place, it won’t be long before it’s cracked by a criminal. Businesses need to stay ahead of the threat.”
Technologies such as artificial intelligence, machine learning and biometrics are effective tools to prevent and detect fraud, even more so when they complement strong fraud risk management frameworks, Abate added. Companies overwhelmingly recognize the need to make significant changes to their operating environments to manage their fraud risk, with most (85% of those polled) saying they’re actively considering investing in these technologies.
Crypto fraud rising
Cryptoasset fraud has become a more popular type of fraud over the last few years as crypto ownership has increased, KPMG reported. Alternative payment methods such as cryptocurrency often have higher fraud rates since controls and regulations are not yet fully established. Fraudulent cryptoasset exchanges are a source for various types of investment schemes, where scammers promise lucrative returns to unsuspecting victims.
While cryptoasset exchanges are required to register with regulators in Canada, many have not done so, KPMG said. As a result, it can be difficult for investors to determine whether a cryptoasset exchange is trustworthy. Since July 2020, the Ontario Securities Commission has seen a 200% increase in crypto-related complaints, KPMG reports.
Having an effective anti-fraud program in place and monitoring third-party risk are two key considerations for preventing and detecting fraud in all sectors, said Myriam Duguay, a partner in forensics at KPMG in Canada. KPMG’s survey found just over one-third (35%) of SMEs strongly agreed their company proactively manages their business and third-party risk to maintain shareholder trust, and more than half 52% somewhat agree.
To prevent, detect and manage fraud, Duguay recommends the following:
Fraud is increasingly costing Canadian businesses. The Canadian Anti-Fraud Centre received more than 90,000 reports of fraud last year, with a reported $530 million in losses (up from $379 million in 2021 and $165 million in 2020).
Feature image by iStock.com/putilich