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Strategies to Prevent Internal Fraud

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As employees can be key perpetrators of fraud, creating and implementing best practices with regard to insiders is a key part of an enterprise’s everyday risk management procedures. For example, developing internal controls that involve multiple layers of review for financial transactions, and arranging independent reviews of the company’s financial records can prevent malfeasance, detect ongoing fraud and prevent it from continuing.

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In fact, according to Kroll’s 2019 Global Fraud and Risk Report, businesses discovered insider fraud by conducting internal audits 38% of the time, through external audits 20% of the time and from whistleblowers 11% of the time.

Technology solutions provider Column Case Investigative recently examined five common types of fraud that businesses face, including employees falsifying their timesheets to steal money from the company, taking intellectual property or passing off counterfeit items as genuine, funneling money away from vendors to themselves, or soliciting favors or compensation from clients or vendors for preferential treatment. These tactics can impact a company’s profits and expose it to possible litigation, but also pose risk to its reputation with customers and partners, as well as its competitiveness.

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To best mitigate these risks, the provider recommended that companies do their due diligence in the hiring process to detect any warning signs that applicants may have a motive to commit fraud. To limit intellectual property theft and misuse, they should limit access to important information and materials.

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Enterprises can also create clear ethical standards for employee conduct and a positive culture in which workers are happier, more committed to the company and more comfortable reporting fraud when they see or suspect it happening.

Check out the infographic below for more best practices to mitigate employee fraud risks:

Businesses Ignore Significant Cybersecurity Risks to Proprietary Data

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Knowledge assets are critical to any business remaining functional and competitive, yet this data is routinely exposed to the risk of theft and overlooked in cybersecurity risk management. According to a new report from the Ponemon Institute and law firm Kilpatrick Townsend & Stockton, the organizations are increasingly ineffective at safeguarding data like trade secrets, product design, development or pricing, and other proprietary information.

As breach notification laws, regulatory requirements, and reputation considerations draw more focus to cybersecurity surrounding personal data of customers or personnel, businesses are leaving more risk on the table regarding their most valuable assets, and that risk has a notable price tag.

In the past year, the average cost of remediating these attacks was about $5.4 million, and half of respondents estimated the maximum cost would range over $250 million, with seven out of ten placing it over $100 million. What’s more, on average, respondents believe only 35% of the losses resulting from knowledge asset theft would be covered by their current insurance policies.

The primary drivers of these costs, respondents said, were (out of 100 points):

knowledge asset theft costs

Why are so many businesses failing to take action against the risks to knowledge assets?

knowledge asset data theft risk

Among the findings, the report noted:

  • Theft is rampant. Seventy-four percent of respondents say it is likely that their company failed to detect a data breach involving the loss or theft of knowledge assets, and 60% state it is likely one or more pieces of their company’s knowledge assets are now in the hands of a competitor.
  • Companies don’t know what they need to protect, or how to protect it. Only 31% of respondents say their company has a classification system that segments information assets based on value or priority to the organization. Merely 28% rate the ability of their companies to mitigate the loss or theft of knowledge assets by insiders and external attackers as effective. The great majority who rate their programs as not effective cite as the primary reasons a lack of in-house expertise (67%), lack of clear leadership (59%), and lack of collaboration between different job functions (56%).
  • Executives and boards aren’t focused on the issue and its resolution. A data breach involving knowledge assets would impact a company’s ability to continue as a going concern according to 59% of respondents, but 53% replied that senior management is more concerned about a data breach involving credit card information or Social Security numbers than the leakage of knowledge assets. Only 32% of respondents say their companies’ senior management understands the risk caused by unprotected knowledge assets, and 69% believe that senior management does not make the protection of knowledge assets a priority. The board of directors is often even more in the dark. Merely 23% of respondents say the board is made aware of all breaches involving the loss or theft of knowledge assets, and only 37% state that the board requires assurances that knowledge assets are managed and safeguarded appropriately.
  • Careless employees and unchecked cloud providers are key risk areas. The most likely root cause of a data breach involving knowledge assets is the careless employee, but employee access to knowledge assets is not often adequately controlled. Fifty percent of respondents replied that both privileged and ordinary users have access to the company’s knowledge assets. Likewise, 63% of respondents state that their company stores knowledge assets in the cloud, but only 33% say their companies carefully vet the cloud providers storing those assets.

Thanks in part to the lack of action currently, there is plenty businesses can easily do to improve.

“Companies face a serious challenge in the protection of their knowledge assets. The good news is there are steps to take to reduce the risk,” said Dr. Larry Ponemon, chairman and founder of the Ponemon Institute. “First of all, understand the knowledge assets critical to your company and ensure they are secured. Make sure the protection of knowledge assets, especially when sharing with third parties, is an integral part of your security strategy, including incident response plans. To address the employee negligence problem, ensure training programs specifically address employee negligence when handling sensitive and high value data.”

Morpho Hacker Group Targets Intellectual Property

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With the highly-publicized rise in cyberbreaches, we have seen hackers break into systems for a variety of reasons: criminal enterprises simply stealing money, thieves gathering Social Security or credit card numbers to sell on the black market, state-sponsored groups taking confidential information, and malicious actors taking passwords or personal data to use to hit more valuable targets. Now, another group of financially-motivated hackers has emerged with a different agenda that may have even riskier implications for businesses.

According to a new report from computer security company Symantec, a group it calls Morpho has attacked multiple multibillion-dollar companies across an array of industries in pursuit of one thing: intellectual property. While it is not entirely clear what they do with this information, they may aim to sell it to competitors or nation states, the firm reports. “The group may be operating as ‘hackers for hire,’ targeting corporations on request,” Symantec reported. “Alternatively, it may select its own targets and either sell stolen information to the highest bidder or use it for insider trading purposes.”

Victimized businesses have spanned the Internet, software, pharmaceutical, legal and commodities fields, and the researchers believe the Morpho group is the same one that breached Facebook, Twitter, Apple and Microsoft in 2013.

Symantec does not believe the group is affiliated with or acting on behalf of any particular country as they have attacked businesses without regard for the nationality of its targets. But, as the New York Times reported, ” the researchers said there were clues that the hackers might be English speakers — their malicious code is written in fluent English — and they named their encryption keys after memes in American pop culture and gaming. Researchers also said the attackers worked during United States working hours, though they conceded that might just be because that is when their targets are most active.”

The researchers have tied Morpho to attacks against 49 different organizations in more than 20 countries, deploying custom hacking tools that are able to break into both Windows and Apple computers, suggesting it has plenty of resources and expertise. The group has been active since at least March 2012, the report said, and their attacks have not only continued to the present day, but have increased in number. “Over time, a picture has emerged of a cybercrime gang systematically targeting large corporations in order to steal confidential data,” Symantec said.

Morpho hacking victims by industry

Morpho hackers have also been exceptionally careful, from preliminary reconnaissance to cleaning up evidence.

In some cases, to help best determine the valuable trade secrets they would steal, the group intercepted company emails as well as business databases containing legal and policy documents, financial records, product descriptions and training documents. In one case, they were able to compromise a physical security system that monitors employee and visitor movements in corporate buildings. After getting the data they wanted, they scrubbed their tracks, even making sure the servers they used to orchestrate the attacks were rented using the anonymous digital currency Bitcoin.

In short, the hackers are really good, according to Vikram Thakur, a senior manager of the attack investigations team at Symantec. “Who they are? We don’t know. They are virtually impossible to track,” he said.

The Cost of Intellectual Property Theft

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Intellectual property is the lifeblood of any organization. It is what distinguishes one company from another and is the main reason customers buy the products and services that they do. This is why IP theft is so important and can have such an impact on individual businesses and the economy as a whole. In fact, reportedly, IP theft costs the U.S. economy more than $300 billion every year. The infographic below, created by software provider i-Sight, takes an interesting look at the scope of the problem and the efforts to prevent it.

For more on the topic, be sure to check out our special section on IP risks in the latest issue of Risk Management magazine.

Copy(right) Cats: How Intellectual Property Theft Affects Everyone, Including You [INFOGRAPHIC]

 

Copy(right) Cats: How Intellectual Property Theft Affects Everyone, Including You from i-Sight