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 There are big risks in treating fraud as a low priority in the recession, small businesses are being warned by the Fraud Advisory Panel (FAP).
“On the contrary, the threat is at its worst during hard times. Big companies can be badly shaken by fraud but small ones can be destroyed” says Ros Wright, chairman of the UK-based FAP and a former director of the Serious Fraud Office.
“Recession brings enormous pressures and it’s tempting for small firms to treat fraud as the least of their worries. But coping with the consequences of even a small fraud can consume huge amounts of time and resources which are already at a premium. Fraud prevention is an essential part of any downturn survival strategy.”
The FAP, a registered charity established by the Institute of Chartered Accountants in England and Wales, notes reported fraud against British businesses has increased significantly over the last year.
Ros Wright explains that “recession increases the potential for businesses to fall victim to new frauds committed by opportunistic criminals or previously honest people and companies under economic pressure. And it often brings to light existing frauds as credit lines run out and financial manipulation can no longer be concealed’.”
* Managers desperate to keep their heads above water may be tempted to falsify accounts and sales returns.
* Employees with large debts may inflate expense claims, ‘borrow’ from the till, steal stock and company assets and collude with customers, suppliers or contractors.
* Staff may be more vulnerable to attempts to get them to sell confidential information.
* Companies providing customer credit can be at risk from fraudulent applications.
* As smaller firms find it harder to obtain credit from traditional sources they will be tempted to turn to new and untried sources of funding, some may be fraudulent.
The Panel has put together advice on how to protect your business:
DO:
* Identify the areas of your business that might be most vulnerable to loss from theft or fraud, such as sales, stock, purchasing, expenses and record keeping.
* Strengthen any obvious weaknesses you have identified. This might include introducing additional checks for signing off payments or authorising purchases.
* If possible, designate a senior member of staff with responsibility for managing these risks.
* Monitor your bank and credit card statements for unusual transactions.
* Ensure that your business premises have adequate physical security protection including locks, keypads and alarms.
* Try to minimise cash transactions.
* Conduct checks on your suppliers, contractors and biggest customers to make sure they are who they say they are and that you are getting value for money.
* Check invoices against original purchase orders and the goods supplied.
* Make sure your staff are aware of the risks from theft and fraud and how to report it.
* Communicate staff expense policies/procedures and monitor compliance.
* Check references for all new staff; full-time, part-time, temporary, and casual. Further checks may be needed as employees are promoted or require access to more confidential information.
* Adequately protect your IT systems and business information from the cybercrime risks posed by phishing, viruses, hacking and scams.
* Ensure sources of credit and finance are properly authorised by the Financial Services Authority; or licensed under the Consumer Credit Act 1974 by the Office of Fair Trading.
* Consider how you would respond to fraud if it was discovered in your organisation.
DO NOT:
* Forget that severe economic pressures can cause previously honest people to become dishonest.
* Assume all information provided by prospective employees, lenders or contractors is accurate.
* Economise on protecting your business against the risk of fraud.
www.fraudadvisorypanel.org
•Date:31st March 2009• Region: UK •Type: Article •Topic: Operational risk
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