Be vigilant

Risk manager should be on the lookout for fraud and other criminal activity inspired by the recession.

In the struggle to make ends meat certain types of fraud appear to offer a quick and easy way of making money. Insurance fraud is one crime few people seem to have a moral objection to in a tough economy. An RSA survey revealed that 1.4m Britons think that committing insurance fraud is more acceptable now than 12 months ago because of the challenging economic climate.

But the problem is not restricted to Joe Public. Commercial insurers also report an increase in other types of fraud such as arson and motor scams. Figures from the Association of British Insurers showed that the cost of fire damage in 2008 rose by 16% on 2007 to a record £1.3bn. Nick Starling, the ABI’s director of general insurance and health, said: ‘Insurers are reporting a rise in large scale fires. We believe that arson and fraud are contributing factors.’

As well as increasing the pressure on individuals to commit fraud, with less money around companies are more likely to spot discrepancies on their books. This can create a whole new set of liabilities for the affected companies.

“Only a fraction of the organisations that house data have the necessary controls.

Steve Wright, senior manager, risk assurance services

Madoff and Stanford are the two headline cases at present, the shear scale of these allegations ($50bn and $8bn respectively) mean that comparatively smaller, but still massive, frauds aren’t even making the news. With literally billions being wiped off the share price of companies around the world, shareholders, including institutional investors, are left only with the prospect of legal action to recoup their money.

Former AIG boss Maurice "Hank" Greenberg is suing AIG for securities fraud after shares he bought for $54.37 in January 2008 became worth just 42 cents. Greenberg, the insurer's largest individual shareholder, accused AIG of overstating its financial health and masking losses on credit default swaps that hedged default risk for at least $527bn of debt.

In the current economy, organised crime also poses more of a threat to the security of companies. Insiders have always posed the biggest threat to organisational security, because they have privileged access to information and security systems. If employee moral is low as a result of financial pressures, restructuring or lay-offs, criminal gangs, who want to steal intellectual property or customer data, are handed a way in.

‘We have seen examples of cleaning staff being targeted outside of work and threatened with violence unless they deliver corporate data to the criminals,’ said Jay Abbott, a security specialist with PricewaterhouseCoopers. ‘Only a fraction of the organisations that house data have the necessary controls in place to protect it,’ added Steve Wright, senior manager, risk assurance services, PricewaterhouseCoopers.