Why Fraud Risk Management Training is Important for Every Company

The Punjab National Bank (PNB) case of 2018 has been reported as one of the biggest financial frauds in Indian corporate history, which was of almost Rs 10,000 crore. The biggest scam was carried out by businessman Nirav Modi and his uncle Mehul Choksi. What they did was engineer a huge scam that involved fake Letters of Undertaking (LoUs) to get overseas credit from other banks. This was all happening right under the noses of the Bank’s employees and auditors, and this happened for years.

The scam could take place in such a big organisation because there must have been multiple loopholes in the internal control, a lack of fraud awareness, and no training on fraud and risk detection.

This particular case is the reason why Fraud Risk Management Training is very important for every organisation, but not just for financial institutions.

What is Fraud Risk Management Training?

Fraud risk management is a holistic and proactive fraud mitigation approach that is embedded within an organisation. A successful strategy requires robust internal controls plus investment in anti-fraud technology. It also needs to consider the current and future fraud landscape. Fraud and financial misconduct are an undeniable reality of the modern globalised business landscape. The average U.S. organisation incurs an estimated 5 per cent loss to its annual revenue due to fraud. As a result, businesses are increasingly interested in fraud risk assessment and management to help protect the bottom line. Furthermore, regulators are increasingly demanding more active, global management of fraud risk.

Fraud risk management training is the process of guiding professionals in identifying, understanding, and responding to fraud risks in an organisation.

How Fraud Risk Management Training Can Prevent Scams

1. Detecting Early Red Flags

Fraud risk management training teaches employees to learn how to spot the inconsistencies in processes or documentation, what patterns to look for in loops in financial transactions and how to report anomalies safely and confidentially. If the PNB staff had gotten this training, they would have recognised that the LoUs were being issued without proper approvals, and the scam could have been prevented.

2. Strengthening Internal Controls and Accountability

The weakest point for every organisation is the weak internal control environment. The fraud risk management workshop focuses on the segregation of duties, the conduct of surprise audits and reconciliation checks and using data analytics for detecting duplicate or unusual transactions. By having these basic practices in the organisations, the chances of internal fraud are reduced.

3. Empowering Employees Through Awareness

The case of PNB didn’t come to light until a junior officer questioned about a routine transaction. The training of fraud risk management equips the employees for all levels, so that they can act as the first line of defence. Through this, the employees understand the importance of vigilance, ethical behaviour and timely escalation.

4. Encouraging Ethical Decision-Making

The fraud risk management certification provides employees with a lesson about the fraud triangle, i.e., pressure, opportunity, and rationalisation. The employees are taught this through real-life scenarios and ethical dilemma exercises, which help the employees to recognise manipulative situations and make the right decisions even when under pressure. 

5.  Safeguarding Financial and Reputational Integrity

This scam of Punjab National Bank led to a huge financial loss and also ruined the trust of the public in the banking system. This incident also led to a drop in the Bank’s value and India’s reputation in the international market. Organisations that equip themselves with fraud risk management training can handle these crises. The employees trained in fraud risk management can easily conduct risk assessments, evaluate control gaps, and make sure that financial and reputational damage is minimised.

The case of Punjab National Bank (PNB) is a fine example that even the most trusted organisations can face downfall if awareness and accountability are missing. Nobody can ever stop fraud, but with the right training, it can be avoided. Fraud risk management training teaches the employees and the organisations the importance of a culture of transparency, vigilance and cultural strength that will not only protect just the finances of the company but also the reputation and people of the organisations.