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Customer Due Diligence- Risk Assessment to Stop Frauds

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According to the study published in the Journal of Accountancy, there are two reasons behind a fraud attempt, it is either need or greed. Additionally, three vital factors can be the motivation behind the fraud scheming as well. They are known as the rationale, error-prone justifications, and open opportunity. So, criminals execute their plans due to a lack of money, the ability to make a fraudulent plan of action, and their own rationalizations to make the crime justified. 

How Does A Fraud Risk Analysis Work?

A scam risk analysis is performed to check the flaws of the security against all kinds of criminal attempts. Nevertheless, every business has different types of fraud to deal with. For example, internal scam attempts can be expropriation of property and embezzlement attempts whereas external frauds can be hacking attempts on data and customer accounts. 

It is commonly said that perpetrators attempt hacking because they found a weak point in the cybersecurity of the organization. To recognize the flaws and to assess the risk associated with clients, a scam risk analysis is a must for organizations. 

The risk analysis process is modified according to the requirements of the organizations and companies. The managers of the company scrutinize everything in order to figure out the fraud attempt on the organization. It is known that changes in the company occur on a regular basis, so the risk analysis should be done accordingly. It will help catch the scam attempt in a timely manner. There are several methods that can help with risk analysis. For instance, a pattern, and a narrative. A company can use a technique that suits its requirements. 

The fraud risk analysis should evaluate four important points. 

Embezzlement

Majorly inventories, paper money, and business properties are prone to embezzlement and they should be evaluated for any suspicious behavior. When it comes to property embezzlement, it is more than stealing. So, workers who use company assets for personal gains are subject to the KYC compliance and regulations of embezzlement. 

Finance Based And Non-Finance Based Communication

The lack of consistency between the financial and non-financial data can be the source of internal scams. It is usually employed by people in the management by overriding the internal controls and regulations and modifying the financial statements e.g. properties and profits. Nevertheless, the risk analysis process can screen both the financial and non-financial performance markers. For instance, the number of customers’ accounts, their stores, and financial statements according to the nature of the business. 

Unlawful Actions

Everyone knows that scams are basically illegal attempts and evaluators have to keep important data on scam pointers, strategies to perform crimes, and different kinds of frauds associated with different organizations. Hence, the fraud analysis process is critical in facilitating businesses to overcome and discourage scam attempts. 

What Are Some Crucial Risk Factors?

The Risk Associated with Geography

Organizations that are located in high-risk geographical areas should assess their customers inside and out. To this end, an upgraded review process should be practiced. The practice will support companies in creating risk profiles for the clients. 

The Starting Point Of Wealth

Any risk that is linked with the wealth and property of a business can be unfavorable. If organizations have a connection with high-risk customers (involved in money laundering), they can negatively influence the company. Hence, authentication of the source of income is significant for constructing any risk profile. 

The Danger That Comes With Watchlists

The high-risk clients that are on the global monitoring list, PEPs, and financial fraud data are huge red flags for any business. Incorporating them or establishing any type of connection with them can be detrimental to the company. Thus, thorough monitoring of the clients is critical for organizations’ safety. 

How Does Regular Monitoring Help With Effective Risk Management?

People like PEPs (politically exposed persons) and money launderers are big red flags for organizations in multiple ways. For example, when a customer onboards a company, the organization checks for risk. According to AML regulations, any high-risk client should be completely evaluated. Nevertheless, screening at regular intervals is important for effective risk management. 

It is crucial to accumulate updated information on clients for creating a risk profile. Nonetheless, multiple data sources like PEPs list, global monitoring list, and financial fraud data storage are quickly available that can facilitate companies in risk analysis. On the other hand, organizations can compile reports that are according to international standards. Moreover, businesses can integrate CDD, document verification, and EDD processes that are in accordance with AML regulations so that they can protect themselves against financial downfall. 

Conclusion

KYC Customer due diligence is an important step in protecting firms against fraudulent attempts. Companies can execute the review process according to international standards and they can collect data through easily available sources e.g. PEPs list, and global watchlist. In this way, CDD is highly empowering for companies and businesses. 

For more informative content read here: Businessesinsiders.com

 

 

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