How to spot the warning signs of fraud in your business
Increased fraud, and other types of financial crime is one of the unfortunate consequences of the current economic downturn across Europe, according to the ACCA's head of business law, John Davies.
Citing recent figures from KPMG's Fraud Barometer, John Davies says there has been an increase in fraud cases - in the first half of 2009 over 160 cases of serious fraud, involving a total of £636 million, were brought before the UK courts: the highest 6-monthly figure in the 21 year history of the KPMG barometer.
John Davies says: “It is a matter of concern that many businesses do not seem to be taking reasonable steps to defend themselves against fraud. According to BDO Stoy Hayward’s research, less than a third of UK businesses have a fraud training programme and 40% do not have any fraud prevention measures in place. The recession may be prompting businesses to cut costs by scaling down or dismantling the internal controls which act as a check on fraud – this could turn out to be dangerously counter-productive.”
SMEs will not be in a position to operate internal controls on the scale of larger companies. But any business, regardless of size, is potentially at risk and should take reasonable precautions to avoid falling victim.
Warning signs in staff behaviour
Mr Davies advises businesses to look out for the following possible warning signs in the behaviour of their staff:
- Increased levels of stress
- Lifestyle not commensurate with salary
- Personal financial problems
- Reluctance to take annual leave
- Unwillingness to delegate
- Cosy relationship with contractors and suppliers
Possible financial indicators of fraud
Companies should also watch out for possible financial indicators of fraud, such as:
- A rise in cash transactions
- Large variations in expense claims between offices
- Poorly reconciled cash expenses
- Rising costs with no explanation, or that are not commensurate with increases in revenue
- Customer complaints and large volume of refunds to customers
Mr Davies suggests that all businesses should adopt anti-fraud policies and these should be communicated to the staff. New recruits should be screened and internal-anti fraud controls should be implemented and reviewed at regular intervals.
John Davies concludes: “There is an increasing amount of laws, regulations and guidance on the prevention and identification of fraud and other forms of financial crime, some of which impose significant civil and criminal penalties for non-compliance. On top of this, the process of external audit will assess the adequacy of a company’s internal controls for preventing fraud from occurring. But combating fraud should not be seen simply as a compliance exercise – for any business it should form part of its overall self-defence mechanism.”
Posted November 11, 2009
