What is Insider Fraud?

An Amazon selling support associate was recently arrested by the FBI after issuing more than $90,000 in fraudulent refunds to himself and people he knew. The former Amazon employee used different buyer accounts to purchase electronics and took advantage of his position to issue refunds without returning the products. This is an example of insider fraud. Insider threats are on the rise, and this type of fraud can be extremely costly for the organizations that fall victim to it.

To mitigate your risks, you need to implement stronger controls, leverage data from different processes and develop a culture of accountability.

Understanding insider fraud

Insider fraud is a type of threat that comes from the inside – a current or former employee, contractor, or business partner can carry out a fraudulent scheme that takes advantage of the data or processes they have access to in the context of their job.

These insiders often have unique opportunities in the form of access to valuable data or tasks like processing payments.

Some instances of insider fraud are committed by individuals with criminal intentions, but insider threats can also be the result of human error or negligence.

How much does insider fraud contribute to the broader problem of fraud?

The Association of Certified Fraud Examiners estimates that organizations lose 5% of their annual revenues to fraud on a global scale. This amounts to nearly $5 trillion lost to fraud on a yearly basis.

As much as 40% of these losses could come from insider or occupational fraud, representing a total loss of $2 trillion a year. Insider fraud incidents tend to be especially devastating for organizations, with the average cost of an incident reaching $412,000.

Additionally, a recent Ponemon Institute study found that instances of insider fraud have become more common. This type of fraud increased by 47% between 2018 and 2020.

The study also found that the cost of investigating insider fraud increased by 86% over the past three years and that losses tend to increase if the organization is unable to detect and address the problem rapidly.

What does insider fraud look like?

This type of fraud describes a broad category of fraudulent schemes and errors linked to negligence. Here are some of the most common environments where insider threats exist:

Accounting, accounts payable, and loans

There is an insider risk to consider anytime employees have access to accounting systems. Whether it’s an accounts payable department or a team in charge of approving loan applications, employees have access to corporate payment methods and have the authority to issue funds or access client accounts.

The most common types of insider fraud that exist in this environment include account takeover and issuing payments, loans, or contracts to accounts the insider or their accomplices control.

Client data and accounts

Employees with access to client data and accounts have a unique opportunity to use this data to commit crimes. They might take advantage of their position to divert funds, run a money laundering scheme, or collude with external threats to sell client account credentials.

Call centers and high transaction volumes

Call centers, fulfillment centers, and other environments where a high transaction volume can be expected create additional risks. Industries like financial services and e-commerce are particularly vulnerable.

Mistakes and negligence are more likely to happen due to the high volume of transactions, and insiders are more likely to get away with committing fraud if they work in a busy department.

Risks include sharing customer information, approving fraudulent applications, solving problems in unethical ways, or leaking data.

How we prevent insider fraud

With 40% of fraud-related losses being tied to insider threats, mitigating the risks of occupational fraud is crucial. We recommend developing a strong system of internal controls and fostering a company culture of transparency and accountability.

You can go further with our end-to-end anti-fraud system. Our solution provides you with detailed audits to uncover anything unusual with client accounts, application approvals, employee sessions, or transactions.

We can analyze activity from different processes and use our findings to help you develop a better performing risk and compliance strategy. Our approach includes identifying the top areas of risk that exist in your organization to tailor our end-to-end solution to the unique threats you are facing.

We can also recognize emerging risks and implement a monitoring strategy. Our goal is to assist you in the process of creating an environment that is more resilient to risks while still managing costs.

Using data to prevent insider fraud

Data is one of the tools we use to uncover and prevent insider fraud. Our Insider Threat Data Orchestration organizes data from multiple sources to give you a centralized view of processes that carry risks of insider threats.

Here are some of the data sources you can leverage with our system:

  • Data from employee session logins and activity.
  • Vendor data.
  • Data from our identity and behavioral analysis tool.
  • Leaked credentials from our dark web credential monitoring solution.
  • Our global consortium data with information about known fraudulent entities.

Our solution supports integration with third-party data and technology so that you can use additional tools and data sources relevant to your organization as well. You can access these multiple data sources via API or our analytics platform for optimal visibility and real-time insights.

The benefits of using Fraud.net to fight insider fraud

Criminals excel at finding and exploiting flaws. Our end-to-end anti-fraud prevention system encompasses the entire customer lifecycle to ensure that no potential weakness is overlooked:

  • Our solution gives you valuable insights into new accounts opened, applications that are reviewed and approved, and existing employee and client logins.
  • Detailed transaction audits help you flag suspicious payments.
  • Session data can uncover insider threats thanks to location, time, or unusual behaviors.
  • You can track changes in existing accounts to identify instances of account takeover.
  • Post-transaction reviews help you ensure that proper workflows and procedures were followed.
  • You can use customized machine learning models along with our end-to-end solution to uncover threats unique to your organization.

Turning fraud prevention into a process that covers the entire customer lifecycle will help you identify anything out of the ordinary, whether it comes from leaked data, unauthorized access, suspicious payments, or human error. Contact Fraud.net to schedule a demo of our end-to-end anti-fraud prevention system or a free fraud analysis, and start mitigating insider fraud risks today.