Anti-Fraud Policies on Business Operations in the UK

Introduction

Fraud is a disease that has plagued both the businessman and the consumer in the industry, since time immemorial. Contemporarily, the advancement of technology has become a double edged sword when it comes to fraud. This is evident by the scandal caused by the data breach of over 100 million people who were account holders in Capital One bank in July 2019 (Flitter and Weise, 2019). Hence, fraud management is an evolving and dynamic phenomenon which is present in every business. The project is an inquiry into the effect fraud management principles and policies have on the operation of businesses in UK. By undertaking this inquiry, the project will try to uncover if there are any possible hindrances these policies cause to businesses.

2. Research Objective

The objective of this research is to assess and understand the effect fraud management policies have in the functioning of business, more specifically in the UK. It hopes to achieve that through a critical review of the existing literature of the objectives and the processes involved in fraud management and exploring the rationality behind the implementation of those strategies.

3. Literature Review

Financial frauds have increased many-fold in the past few decades, especially with the growth of the large industry and banking sector. It is estimated that in 2005, the total losses incurred by the financial sector in the UK because of fraud amounted to about 1

billion pounds. Businesses which do not fall under financial sector have incurred losses over over 0.93 billion pounds in the same year, but it is estimated that combined, both these sectors incur losses of an additional 1.82 billion pounds (Burrows et al, 2007). A lack of recent figures fail to show what these figures currently might be, but going by the rate at which fraud-incurred losses have increased over the years, its bound to me more than the last known figures. Hence, it is evident, fraud is a costly problem in the UK. Measures for fraud management have found to have a positive impact on customer business relationships as it assures the customers that their investment and information is safe with the business (Guardian Analytics, 2011). Customer satisfaction, i.e; the feeling a customer feels after purchasing the goods and/or services (Liu et al, 2011), is found to be more positive when there is a bond of trust between the business and the customer, based on their fraud management approach (Hoffman and Birnbirch, 2012). Gates and Jacob (2009), working on retail banks, find out that in the banking sector, most measures taken in the direction of fraud management relates to refunding the customer when fraud has taken place and they have already suffered losses. This is a bad course of action as Hoffman and Birnbirch (2012) discover that notions like the loyalty and long term association with a particular organisation, in context of the banking sector, are affected when people are exposed to fraud in the business. They are less likely to trust that business again and in some cases, are likely to stop trusting the sector altogether. If the business’s strategy of managing fraud is by remunerating the consumers after the fraud has taken place, thus, is not just costly in terms of financial losses, but they also lose the loyalty of their customers. Furthermore, Burrows and Levi (2007) rationalises that businesses will consider within the cost of crime the cost that it took for the organization to remunerate the wrongs customers too, hence, they will not be especially willing to pay them back. A weakness that current literature faces is the lack of unity with regards to whether fraud management includes remuneration that takes place after fraud is done or

not. Brand and Price (2000) agree that they do. Another central weakness in academia that businesses in UK suffer from is the lack of an accepted definition of the word ‘fraud’, whether it is a financial definition or a brand related definition. In the UK, fraud management techniques include small costs of machinery like usage of shredders to shred important documents and also membership to bodies like the Association of Business Insurers and the Association for Payment Cleaning Services. These bodies are responsible for ensuring that the measures undertaken by the business effectively minimise the risks of fraud. Additionally, bodies like CIFAS, which is non-profit body, is dedicated exclusively to fraud prevention and consists of both private and public sector business, which avail its membership (Levi and Burrows, 2007). Some organisations feel that transparency with their customers about fraud prevention measures may make them feel wary of doing business with it, it has a reverse effect whereby people become wary of doing business with them. On the other hand, if the fraud management measure of a business involves informing consumers about potential frauds, they may trust the business more, and in some cases opt for further security measures which come at extra cost, thereby profiting the business. Furthermore, it inspires consumers to trust the business, which is directly related to their decision with continuing further with the business further along (Hoffman and Birnbirch, 2012).

Methodology

The research will depend on both quantitative and qualitative data to understand what fraud management measures companies in the UK take and how it affects them, both negatively and positively.

The research will depend on primary and secondary sources for the purposes of collecting its data. The research will speak with over 20 customers, equally distributed

between public and private sectors to understand how knowledgeable they are about the measures business take with respect to preventing fraud.

The questionnaire will be semi-structure which will consist of 10 close ended and 5 open ended questions. The second set of questionnaire will consist of 5 open ended questions which will be asked only to individuals at managerial level positions at companies. The questionnaire for customers will be aimed towards gauging the understanding the people’s understanding of fraud and also finding out if they have been the victims of financial fraud before.

The questionnaire directed towards the mangers will try to uncover the measures that managers take in order to prepare their business for frauds and what measures they take after a customer has been the victim of fraud.

Research Sample

The questionnaire for data collection from the sample will be sent electronically to a sample size of 20 customers. The sample size will be selected by the method of stratified sampling, whereby the criteria for selection will be an approximate equal financial stake in a particular business and whether or not the individual invests in a public sector business or private sector business.

Because this research understands that an inquiry into the realistic fraud management techniques which are undertaken by companies is something not all businesses will be willing to reveal. Hence, managers will be selected by the usage of convenience sampling technique, where the priority of the method will be the availability of the managers and their willingness to participate in the research process.

Secondary Sources of Data Collection

The primary source of data in this research will be obtained through the usage of survey methods. For the secondary sources, this project will consult archival records of incidences of financial frauds in a bid to understand which gaps in the management led to these incidences. Additionally, it will consult relevant literature of industry and management in the UK for the same.

Potential Outcome

The outcome this research project hopes to uncover is that organisations which have a clear, working mechanisms of fraud prevention, in the long-term are more profitable. That is because the transparency and subsequent trust buildup with the consumers/clients and financial profits which come with not providing remunerations after incidences of fraud make for long term profit. This holds true even if they have to incur costs like membership and extra security.

Tentative Timeline

First Semester: Collection of preliminary data, secondary data by literature review, attending relevant classes and starting research into sample.

Second Semester: Further literature review, getting into contact with potential samples, conducting unstructured, informal interviews to form basis for the formation of questionnaire.

Third Semester: First stage of data collection and begin writing paper, finish writing literature review and begin data collection for second stage of interviews with business managers.

Fourth Semester: Write paper, analyse primary data and transcribe information gathered from second phase of data collection. Conclude findings and turn in paper.

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References

1. Nytimes.com. 2020. Capital One Data Breach Compromises Data Of Over 100 Million (Published 2019). [online] Available at: capital-one-data-breach

hacked.html#:~:text=A%20software%20engineer%20in%20Seattle%20hacked%20into%20a %20server%20holding,of%20data%20from%20a%20bank.> [Accessed 1 December 2020].Levi, M., Burrows, J., Fleming, M., Hopkins, M. and Matthews, K.G.P., 2007. The nature, extent and economic impact of fraud in the UK.

2. Guardian Analytics (2011), “2011 business banking trust study”, available at: https://info. guardiananalytics.com/2011-TrustStudy-Download.html (accessed November 30, 2020) 3. Lai, L.H., Liu, C.T. and Lin, J.T., 2011. The moderating effects of switching costs and inertia on the customer satisfaction-retention link: auto liability insurance service in Taiwan. Insurance markets and companies: analyses and actuarial computations, (2, Iss. 1), pp.69-78. 4. Hoffmann, A.O. and Birnbrich, C., 2012. The impact of fraud prevention on bank‐customer relationships. International journal of bank marketing.

5. Gates, T. and Jacob, K., 2009. Payments fraud: perception versus reality–a conference summary. Economic Perspectives, 33(1), pp.7-15.

6. Levi, M., Burrows, J., Fleming, M., Hopkins, M. and Matthews, K.G.P., 2007. The nature, extent and economic impact of fraud in the UK.

7. Brand, S. and Price, R., 2000. The economic and social costs of crime.