Protecting your business from fraud

It’s critically important that every business, irrespective of its size, has appropriate internal controls in place to reduce the risk of fraud. Acts of fraud are not limited to big business and unfortunately implementing appropriate internal controls measures are often overlooked by owners of SME’s which makes them more vulnerable to losses arising from fraud. A number of recent surveys have found fraud is actually most common in SME’s and the average cost of the fraud to the business is higher when there are less than 100 employees in the business.

Fraud is something that can be relatively easy to carry out, especially if internal controls are non-existent or lax. Internal controls are systems that are put in place within a business to help reduce errors, safeguard assets, ensure greater financial accuracy, keep better track of assets and liabilities, keep up-to-date with compliance, and reduce the risk of fraud.

Common instances of fraud include:
• False invoicing
• Transferring money by EFT to one’s own account
• Cheque fraud
• Payroll fraud
• Skimming/theft of cash

The risk of fraud occurring is compounded further when a business is going through a period of rapid growth and internal resources are stretched and attention is focused on different priorities. Whilst technology is assisting with reducing the risk of fraud and streamlining processes, it’s impossible to stop fraud without proper internal controls.
Ultimately, it’s up to each business owner to determine the level of risk they are willing to carry in the business, and to develop procedures and controls for reducing the potential and opportunity for fraud to occur. Maddock’s Accounting & Advisory can talk to you more about fraud prevention for your business and assist owners with managing these risks.

Contact the Maddock’s Accounting & Advisory team here to find out how we can help.

“Business pundits may be surprised to learn that the biggest financial frauds don’t just happen in big business or in high finance – they’re also happening in the suburbs. Small businesses are sustaining larger median fraud losses than their bigger brethren, according to the Association of Certified Fraud Examiners. There’s nothing new about the scams, except that technology has proved not to be the preventative control it was hoped it might be.

1. False invoicing – most popular with fraudsters is the payment to fictitious suppliers or making payments to valid suppliers but diverting them to the fraudster’s own account.

2. Transferring money by EFT to one’s own account – is on the increase in both small and large businesses as online banking technology is adopted.

3. Cheque fraud – this mostly incorporates writing cheques to cash, or overwriting cheques in the fraudster’s favour. The risk is heightened if the same person who writes cheques also completes bank reconciliations, which in small companies can often be the case.

4. Payroll fraud – especially if there is a poorly segregated, or larger base of between 70 and 100 employees. It’s easier for payments to go undetected if not properly scrutinised by someone other than payroll but with requisite knowledge of the payroll. Overpaying overtime is also a problem, especially in collusion with an employee.

5. Skimming/theft of cash. This happens in businesses with less formal receipting processes (the ability to receive cash without issuing a receipt), or where the receiver can manipulate the debtors’ ledger and apply other receipts to the cash transaction that was misappropriated (also known as lapping).”

See the original article here


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