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Can fish see water? (Or why do we ignore the huge risks of losses and fraud?)

No, fish do not see water just as we cannot see the air particles that are constantly swirling around us. This “noise” is ignored by our brains since it is not necessary for daily survival. 

The brain has evolved to carry out amazingly complex tasks but helps us to filter out what we do not need to spend our time processing. But what else do we ignore that is in plain sight and what harm does it cause us or the organizations we work for?

In the hugely popular book, ‘Thinking, Fast and Slow (1), the author Daniel Kahneman (1) explains that our brains have evolved to save us from expending valuable energy by focusing on fast, instinctive and emotional thinking to the detriment of slower, deeper, and more logical thinking.

Relating this to business situations makes it likely that instead of being rational, most of the time, much of our thinking is automatic and is done subconsciously by instinct.  How could this impact our judgement of risk, say around anomalies in supplier behaviour or changes in the behaviour of staff who are in key positions where fraud is easiest to perpetrate?

If our judgement cannot be trusted even when facts and data are visible, how reliable is it when evidence is unavailable, difficult to access, or of unreliable quality?  Kahneman characterises this as ‘WYSIATI (What You See Is All There Is)’.  To put it another way, if the conclusion we arrive at fits our preconceived ideas, we do not challenge the accuracy or completeness of the evidence presented.

So if we cannot rely on our own and our colleagues’ judgment to be rational, evidence based, and free of biases, how can we be sure our people-reliant business processes and checks are protecting our organizations from fraud and losses because we cannot, or do not, “see the water”?

Even more worrying is that only one third of organizations say they address bribery and corruption in their supply chains (2).

A 2021 survey by KPMG (3) found that:

  • 67% of respondents said they were ‘not’, or were only ‘somewhat’, confident that they had identified most of the fraud that occurred during the last year.
  • 92% believed the risk of cyber-fraud had increased during the COVID-19 era.
  • 85% said they did not expect the risk to reduce in 2021.
  • 62% said that employees were the biggest single source of risk, ahead of suppliers and contractors.

Clearly there a is huge unaddressed problem that needs a solution and if human judgement is inherently flawed due to evolutionary development, is the answer AI based Continuous Monitoring?

Although AI, Bots, and RPA are all fashionable trends and are being adopted by most larger organisations, the questions many are asking are: can they be trusted, and do they work?

This will be the subject of the third in this series of articles, and to provoke some thought on the subject of AI. In the meanwhile, even though human factors contribute to 75% of aviation accidents (4), would you board a plane with no-one on the flight deck?

References

  1. Thinking fast, thinking slow. ISBN 978-0374275631.
  2. 2017 Economist Intelligence Unit report that surveyed 800 executives.
  3. KPMG Fraud Survey 2021.
  4. A Qualitative Phenomenological Study Exploring Aviation Communication Experiences of North American Pilots.
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