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Small Company Fraud - how to spot a fraudster!

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Fraud is back on the agenda with this month's OFT campaign aimed at alerting the public to deceptive and fraudulent mass-marketed scams, but PKF accountants and business advisers is reminding owners of small and medium sized enterprises to be alert to the internal threat from their workforce.

Most businesses will be hit by fraud at some point and many of them are unaware of it happening until it is too late. Businesses are not hit by fraud because they are unlucky, but because a dishonest person discovers a weak spot in the business.

The first step SMEs can take to weed out pests and prevent opportunists is to take a look at the existing workforce for the four basic types of fraudster:

• The Loner. The loner works excessive hours – this could be in order to access files, make calls or complete forms when no one is around, but also because as an ongoing fraud becomes increasingly complex, the fraudster is forced to put in more and more time and effort to keep it going. Because they don't take holidays no one ever has to deputise for them – so no one discovers what they're up to. If they do take time off they insist that all problems be left for them to sort out when they get back. Fiercely protective of their own patch.
• The Manipulator. This crafty character is good at manipulating timetables and deadlines, carefully controls access to personnel, customers and suppliers, plays off staff against each other and deals with certain accounts personally outside the main system. The manipulator blinds people with science and exploits ignorance whenever he or she can.
• The Deceiver. Long-standing frauds are often committed by the most outwardly loyal staff – they know how the system works and have networks of friends who may knowingly or unknowingly help them get away with it. The deceiver uses delaying tactics (he or she is always about to go into an important meeting), passing the buck to others, saying as little as possible unless confronted and answering different questions to the ones asked.
• The Boaster. Gives the impression of being wealthy and successful, but the boaster's good fortune may be a tell tale sign that he or she is ripping you off. Expensive cars, houses and holidays are flanked by lavish entertaining. Tends to boast about having all the right contacts and talks over-optimistically about business prospects. Flatters people to make them feel important.

David Dearman, partner at PKF, said: "The number of SMEs taking unnecessary risks by failing to consider fraud prevention is shocking. But fraud is still looked upon as a taboo subject in business – and something that only big corporates have to worry about. But even simple steps such as rotating jobs or make holidays compulsory can make a difference to the vulnerability of your organisation.

"It is also important to know what to do if you are struck by fraud – for instance ask yourself whether your employees know who to tell, if they were suspicious of a fraud? Introducing and implementing a fraud prevention plan can cost SMEs as little at £1,000 – but the consequences of burying your head in the sand could be many times more."

Posted February 8, 2005