(By Jack Bigelow) With the passing of the holiday season, the nation’s brick-and-mortar retail companies are deep in the winter of their discontent. The discontent stems from a business model that appears to be in peril from on-line competitors that are blitzing the retail market, riding the crest of a sea change in consumer buying habits.
More and more, we see references to the coming “Retail Apocalypse,” a term signaling the dire dimensions of this trend. The traditional retail business model is built on the belief that consumers like tangible contact with the goods they may buy—to touch them, feel them, gauge their buy-worthiness, and drive home with them. That model is under attack from the convenience of looking at prospective purchases on a screen, then ordering them and paying from the laptop or smartphone, with delivery within a day or two at the door.

What does all this have to do with fraud?

An article published last November (MBA@Dayton University of Dayton’s online one year MBA program) is titled, Managing Risk During the Retail Apocalypse, and it refers to an article co-authored by our blogger, Dr. Sridhar Ramamoorti and Jim Wanserski, a management consultant based in Atlanta. In that article, they suggest that two risk factors are at play in any potential crisis situation:

• The velocity of risk (the speed at which a risk factor becomes a crisis);
• The agility of the business in making a quick response.

When the business is highly agile in responding to change presenting risk, its likelihood of surviving the crisis is higher.
But that response must first be stimulated by recognition that a potential crisis is looming.

I’d like to suggest that the agility of a business in responding to business risk is highly influenced by its ability to see the start of a crisis at its very germination. That recognition is usually triggered by warning trends in business data—-sales volume, traffic volume, price sensitivity, etc. And data collection, processing, and distribution are fertile fields for fraud, especially when reward systems (including keeping one’s job) are data-based. Cases abound where this has happened, including Enron, Wells Fargo, and HealthSouth.

The MBA@Dayton article notes that retailers were in consensus about their biggest risk factors in 2017: Security breaches (another risk factor of fraud), government regulation, and general economic conditions. We suggest that in 2018, there will also be powerful internal incentives to commit fraud at all levels in the organization in the mistaken belief that good numbers protect positions and encourage advancement. This risk is always there, but current trends in the retail industry exacerbate it. What happens when the numbers are artificially “good” in what they portray, when the authentic numbers would be red flags impossible to ignore? Response to the growing crisis is delayed by management’s blindness to the threatening reality.

For this reason, long-term survival of the business can be at stake in an organization’s efforts to mitigate the opportunities, incentives, and rationalizations behind fraud. And yet, management often fails to recognize the magnitude of risk presented by fraud.
“Clean” data can alert businesses to perilous trends in high-velocity risk, allowing them to employ adaptive business strategies in time to survive the looming crises. And employ fraud mitigation efforts* to reduce the risk of unclean data!

*(education regarding corporate culture, visible emphasis on ethics, programs emphasizing the value of interpersonal competence and reputation, active and well-managed hot lines, and GAAP-endorsed efforts to reduce opportunities for fraud, to name a few)



The Behavioral Forensics GroupTM LLC is a team of professionals with vast experience in detecting fraud, understanding why it occurs, and in recommending steps to mitigate fraud incidence within the corporate workplace, particularly within higher-level (and therefore more costly to the enterprise) executives.  The fields of investigation, organizational psychiatry, accounting and behavioral forensics, and law enforcement are represented within the Behavioral Forensics GroupTM LLC.  Acting in synergy to help organizations prevent, find, and/or reduce fraud, B4GTM is a premier, pioneering practice in this field.

We are blogging at: http://www.bringingfreudtofraud.com

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