Control measures in mitigating risks from fraud

Accounting frauds and identity thefts are generally the result of single factor (ID/password) authentication failures. However, if single factor authentication is inadequate, organizations should implement multi factor authentication, layered security or other control measures aimed at mitigating risk arising from these frauds.

Organizing these days has a number of options to deal with or curb such activities. Some of the methods that could be employed are use of customer passwords, personal identification numbers (PIN), digital certificates using public key infrastructure (PKI), physical devices like smart cards, one time passwords (OTP), USB plug-ins or other types of tokens, transaction profile scripts , biometric identification etc.

Authentication methods that depend on more than one factor are more difficult to breach than single factor methods. Accordingly, properly designed and implemented multi factor authentication methods are more reliable and stronger fraud deterrents.

Confidentiality risks:
Many small and medium sized companies seldom take steps to protect a rising from disputes relating to intellectual property rights (IPR). And when a problem arises, they can do little or nothing to safeguard because they have no legal basis for protection. Take for instance OEM manufacturing / outsourcing in China. Outsourcing disputes of players operating in China must be resolved in that country under the Chinese legal system. Taking a few other steps could reduce risk further.

The following basic steps will go to a great extent in reducing problems of businesses and increase their chances of recovering should any problems arise.

1. Create and properly register your intellectual properly rights. Protect your brand identity by creating and registering your trademark, slogan and logo. Register important copyrights and carefully identity and protect trade secrets proprietary information and know how.
2. Prevent export of counterfeit goods and prevent competitors from registering your trademarks.
3. Use a written agreement to protect know how and trade secrets. Such agreements may also address issues such as non competition and confidentiality.
4. Make sure that goods exported are as per standards agreed upon and as per specifications.
5. Enter into detailed agreement with all parties involved.
6. Thorough investigation of business partners must be carried out and the use of proper employment agreements with the right confidentiality provisions should be done.
7. Ensure responsibility and knowledge are spilt so that no one group has complete knowledge about a process or product. Strategic planning will allow various components to be manufactured in different facilities and the final assembly to be done in yet another facility or in a different country altogether.

Legal issues: Cross border transactions present unique challenges. Many companies enter into international commercial contracts giving little thought to dispute resolution issues. Executives usually focus on deal making and ignore dispute resolution, while those that think about a deal going bad often expect local courts to resolve the dispute. Relying on a local court or even a foreign court may be an effective solution.

International arbitration often provides a better solution. Unlike domestic contracts, cross border contracts are always subject to the law of multiple to be undertaken by a foreign company outside the area of the contracting company gives rise to complicated legal issues regarding laws governing the contract. Some of these issues can be efficiently resolved by careful drafting of the contract. Typically all of these issues can be efficiently addressed if international arbitration procedures are selected for dispute resolution when the contract is drafted.

It is prudent to include international arbitration provision in the contract at the time of drafting the deal. Even if international arbitration is an after thought to the contract, agreeing to international arbitration to resolve a dispute increases the possibility of efficient, reliable and cost effective resolution of the dispute.

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