Steps to shield your business from fraud

7th November 2019

Fraud can be characterised as ‘rule-bending’, but for businesses struggling to manage cash flow it can have catastrophic effects, especially as fraud might take months or even years to detect.

Card Payment

Some common types of fraud carried out by employees include:

Inventory skimming – taking items from stock for resale or personal use. For example, a bartender may take a good bottle of rum, perhaps replacing it with a bottle refilled with a cheaper brand, or chalking it up as wastage.

Expenses fraud – claiming for taxi rides never taken using a handful of blank receipts provided by an obliging driver, or for meals never eaten by altering the date on an old restaurant bill.

Fake invoices – submitting invoices with the name of a supplier, or of a completely fabricated one, but with the fraudster’s own bank details, or those of an accomplice.

Procurement – awarding contracts not on the basis of suitability or value for money but to members of their own household, or to business contacts in return for a cut.

Credit cards – buying personal items with the company card, such as fuel or food.

These schemes rely on the employee having the chance and the employer lacking suitable controls and oversight. Thankfully, with some common sense and good practice, fraud can be tackled.

Reducing the risk of fraud internally

CIFAS -  – the fraud prevention organisation, claimed that 54% of fraudulent conduct by employees was detected by internal controls and audit procedures, which highlights the benefits of undertaking an audit, even if your turnover isn’t over the compulsory threshold. Following an audit, systems and controls can be put into place or modified to make it easier to spot inconsistencies and patterns that could indicate fraud.

First and foremost, nobody should be able to raise a purchase order, sign off an invoice and authorise payment without somebody else checking the details carefully. This is known as ‘separation of duties’. Procurement fraud can be tackled by using this system as no individual should be able to award a contract without oversight of colleagues. Fake invoicing also be tackled by ensuring a second pair of eyes check the details before payment. As an additional layer of protection, automatically reviewing invoices over a certain threshold value can be a way of detecting fraud as well as acting as a deterrent.

In the case of tackling expenses fraud, automated checks can highlight payments that are exactly same amount, which can be inspected further to ensure they are separate and legitimate expense claims. You can also make it compulsory for expenses to have detailed and specific descriptions, making it far more difficult to claim for ‘miscellaneous’ items.

When it comes to company credit card fraud, scrutinising bills is vital to ensure all payments are fair and legitimate. Payments made over the weekend or during holiday periods are a particular red flag, as well as an employee spending significantly more on fuel for their company vehicle than their peers.

To tackle fraud within your organisation, it needs to be clear that nobody is above being questioned or challenged. If something doesn’t look right, your staff need to feel confident asking the Finance Director or any other board member to provide the necessary paperwork. If you give your employees a clear, easy route to highlight dishonest behaviour by their colleagues, many will.

Finally, careful and constant monitoring of cash flow, frequent account reconciliation and sound financial reporting will give you the best possible chance of spotting anything amiss. This is where Cloud Accounting can bring additional benefits to your business, as you have access to real time data at your fingertips.

Threats from outside your business

Certain types of fraud can affect your business from outside your organisation, for example, emails that claim to be from HMRC, which look official and even appear to come from a government email address. They may offer unexpected tax rebates, suggest that your payment is overdue, or that your details need updating on the Government Gateway. The aim of these emails can range from stealing bank details to infecting your business’s computers with spyware, malware or ransomware. If you’re in any doubt, check the HMRC website for advice before clicking on any links or opening attachments.

Scams like this are best countered through awareness, staff training and IT policies – read our blog which offers some top tips to improve your cyber security.

If you need further assistance in protecting your business from fraud, contact our team today on 01926 422292