New conditions, old problem
The business world is suddenly very different from what it was a short time ago. Uncertain economic conditions bring new risks to businesses – and old risks return.
Cost pressures on businesses, stretched household incomes, people unable to borrow: the greater need of money can lead to the temptation to try and get it dishonestly.
In turn, this increases the risk of fraud against your business. That is why it is more important than ever that you look at what you are doing to prevent and detect dishonest behaviour and to ensure you have procedures in place to investigate fraud if and when it is suspected.
Baker Tilly Forensic Services, therefore offer our top tips for dealing with fraud risk. We do not say that following these tips will guarantee that you will not be a victim of fraud, but that these are a good starting point for thinking about the risk of fraud in your business.
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If someone wanted to steal from you, how would they do it? Where are the weaknesses?
The first step to countering fraud risk is to understand where you are most vulnerable.
If you deal in high-value items or handle large amounts of cash, someone could be pilfering. If you have large contracts with suppliers, someone could be getting kickbacks.
Look at your business from the point of view of the dishonest customer, supplier or employee – and work out ways to stop them exploiting your systems for their gain.
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Check out new customers and suppliers with credit reference agencies and Companies House. Search on the internet. If something doesn’t make sense, ask further questions.
Check out new employees and follow up references. Surveys suggest that a high proportion of CVs contain inaccuracies, ranging from exaggeration of experience to fabricated qualifications and false addresses. If appointing temporary staff to sensitive positions, do not simply assume that an agency has done the necessary checks.
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Where possible, segregate duties in sensitive areas. For example, try to make sure that banking and sales ledgers are managed by different people.
The more people that are involved in a process, the more difficult it will be for any one person to steal without being found out.
Develop and communicate fraud and whistleblowing policies. Staff should know both their responsibilities and what to do if they suspect theft by a colleague.
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Your staff are your best line of defence against attempted fraud, whether by suppliers, by customers or by their colleagues.
Once you have identified the key fraud risks in your business, ensure that your staff are appropriately trained to spot and prevent attempted fraud.
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Do you have staff who work out of hours or refuse to take holidays without operational pressures?
Do you have an employee showing signs of stress or personal financial difficulties?
Does someone have a lifestyle that doesn’t match their income?
Any of these could be an indicator of fraudulent behaviour. Equally there may be many other reasons for such behaviours. If someone’s behaviour raises questions, make additional checks on their work.
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Do you have poorly – managed customer accounts or a high level of customer complaints?
Do you see unusual expenses in certain locations?
Are there large amounts going through petty cash without good reason?
These could be the result of incompetence, bad systems – or fraudulent behaviour. Ask questions.
Do not rely on mere consistency of results from one period to the next. You could overlook a long-established pattern of fraud!
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In the event that you discover a fraud, you will need quickly to decide how you deal with it.
Is the fraudster internal or external? How will you secure evidence without tipping off the suspected fraudster? Will your main aim be to recover funds or to see the culprit prosecuted?
How you deal with the situation at the outset may immediately close off certain routes, for example if evidence becomes inadmissible for the purpose of criminal proceedings. Make sure you have a plan in place that will keep your options open.
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The fraud may affect other people and businesses. Confidential customer details may have been compromised. Staff may have to deal with enquiries. You may even attract media interest.
Think of fraud in the same way as any business disaster and have a plan in place to communicate the right message to the right people at the right time: staff, customers, suppliers, bankers, insurers and the media.
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Once you have been the victim of a fraud, you won’t want it to happen again!
Consider what lessons you have learned, what controls can be improved and how the risk of further fraud can be reduced.
Better still, learn from others’ misfortunes rather than your own. You can find out what frauds and scams are going around and how to mitigate the risk of falling victim through organisations such as the regional fraud forums.
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Would you jump for joy if an average customer placed a massive order? Do you have a perfect employee who puts in extra hours and never takes time off?
Dream situations can easily turn into nightmares. If something looks too good to be true, it probably is.