Suite 1, 25 Westerton Road, Glasgow, G68 0FF

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October 5, 2016

Tips to Prevent Fraud

The risk of fraud in business has always been present but the rise of the power of the internet has made it easier to commit. There is plenty of fraud-prevention advice available on the internet – see, for example, the “Fraud Risk Management Guide”, CIMA 2009, available free from www.cimaglobal.com

Here are a few key tips to help you keep safe:

1) Analyse where and how you are spending your money. Are a few key suppliers dominant? Are you getting what you have paid for ? Do due diligence on your main suppliers to check they are legit. Examine personal relationships between any of your staff and these suppliers
2) Do the same for your customers. Are any of them located in areas where corruption is rife? Is it possible that inducements were given in order to win business? Remember that it is an offence in UK law for a company to fail to prevent bribes being paid – this is not about knowing that bribes were paid, but failing to take active steps to prevent bribery!
3) Make sure that payments over an amount appropriate for your business have to have two senior level signatories. Never waive this rule (to prevent the invoice fraud which is now prevalent on the internet). Ensure also that smaller regular payments to suppliers are periodically checked and signed-off.
4) Ensure that the ordering of goods and services, and the payment for them are separate responsibilities undertaken by staff in different areas of the business who have no personal relationships with each other. Similarly ensure that completing tenders and contracts, and raising invoices are separate duties.
5) Train all your staff to check documentation, records and invoices. Get into the habit of having them audit other departments every six-months (rotate who is checking whom).
6) Do a monthly stock-take. Reconcile all discrepancies however small (fraud typically starts small).
7) The most common type of fraud is financial statement fraud (misrepresenting the accounts). Make sure that you use competent accountants and that no personal relationships exist between your auditors and senior managers or directors. Use an annual senior management meeting to review the accounts.
8) A high percentage of frauds are committed by directors and senior managers. These frauds are the hardest to detect. Having two signatories for significant payments (above) will help. Be aware also of the personality traits that can enable fraud to take place – an overbearing personality; a lack of empathy; charming and a skilled manipulator. Anyone in your business?
9) Establish a confidential whistleblowing process. For credibility this should usually be a third-party service. Find details on the internet.
10) Carry out proper checks on people your recruit.
11) Establish a register of gifts and interests which all staff must complete – from paid lunches to Christmas gifts to golf afternoons and trips to the tennis.

Importantly, tie all these actions together in a formal Fraud Prevention Policy. This will include a company-wide code of ethics, and details of fraud prevention procedures (including internal audits, supplier and customer audits, stock checks, separation of duties, payment authorisation, whistleblowing procedure, and so on).

Ensure all staff are trained in proper record keeping and checking. Additionally, train all staff in fraud risk, the signs to look for, and what to do if suspicions are raised. Publicise the discuss the company’s code of ethics with all staff and include it as part of performance appraisal/ personal development discussions. Review each individual’s entries in the register of gifts and interests are discussed as part of appraisal/ personal development.

Create a small cross-functional “fraud investigation” team. This team will undertake risk assessments, investigate any suspicions raised (or frauds committed), and undertake audits. Rotate the members of the team from time to time and attach “observers” so that staff become educated in the signs of fraud, and aware that it is taken very seriously.

Training and communication are crucial. The vast majority of staff want to be part of an open and honest business. When staff feel overlooked, powerless, or insignificant (or afraid of their boss) they are less likely to report suspicions.

Everyone in the business – including directors and senior managers – must be aware that active measures are taken to prevent and detect fraud and that punishment, dismissal, and criminal or civil action lie in store for anyone who commits it.