Behavioral Analytics Can Be Your Fraud Early‑Warning System

Occupational fraud often starts with an employee’s small behavioral change. For example, a salesperson might suddenly download an unusually large amount of customer data. Or an accounting staffer might access vendor records outside of normal working hours.

Behavioral analytics help detect such anomalies by tracking electronic device, website and other digital activities (often using AI) that might increase your business’s risk. In a nutshell, these results allow you to evaluate the behavior and determine whether it warrants a broader investigation.

Pattern spotting

Behavioral analytics tools generally notify owners and managers when worker activity falls outside expected patterns. The types of patterns and trends considered “abnormal” depend on the business, but might include:

• Unusual technology access,
• Significant data downloads or file transfers,
• Questionable requests for payments or refunds, and
• Use of privileges in ways that don’t align with an employee’s role.

It’s important to stress that a behavioral analytics alert should never be viewed as incontrovertible proof that an employee is committing fraud. There are many reasons an employee might trigger an alert — for example, by working late. For this reason, you should carefully consider the worker, context and any other factors before escalating your response.

Ideally, alerts should be investigated by someone knowledgeable about fraud, such as a forensic accountant. Be careful to respect employees’ legal rights. Depending on your location and industry, employee monitoring activities may be subject to privacy, data protection and employment law requirements. If you’re ever in doubt about what you’re allowed to track or investigate, consult legal counsel.

Policies and procedures

Govern your use of behavioral analytics software with a detailed policy. Your policy should answer such questions as: What must employees be told about tracking, and how will it be used? Who may review analytics data? When should alerts be referred for further investigation? And how long should analytics records be retained?

Ask an employment attorney to review your policy for potential legal violations before it’s finalized. And revisit the policy frequently to ensure it reflects changes to your organization and your use of threat detection tools.

Prudent management

If your business conducts a fraud risk assessment, directly link your behavioral analytics to that assessment. Fraud risk assessment reports generally tell you where your business should focus its risk management efforts (possibly through new internal controls) to combat criminal activity. Behavioral analytics helps you monitor the warning signs identified in the report.

However, you should use behavioral analytics sparingly, as part of your broader risk management strategy. Used excessively, these tools may violate employees’ rights, leading to lawsuits, poor morale and costly worker turnover. Even the perception of widespread surveillance can discourage prospective and current employees. So be sure to tie behavioral analytics to actual fraud risks and implement clear policies and procedures. You should also limit data access to authorized personnel with a legitimate business need, including owners and executives, HR leaders, IT security personnel, legal counsel, and outside forensic accounting professionals.

Getting started

We can help you evaluate fraud risks, choose affordable behavioral analytics software, set parameters based on your business’s operations and needs, and train you to use the tools effectively. Contact us to learn more.

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