Fraud prevention - Resources

1. Change in Habits

We tend to believe that colleagues who work extra hours and burn the midnight oil are loyal and committed.

However, if your bookkeeper, office manager, accountant, or any employee with private access to the company’s books, products or property develops new habits, such as coming to the office on weekends, working through vacation time or working longer hours, it may not be loyalty to the business. 

Any of these red flags would be a  reason to keep a closer watch on the books and the employee.

2. Rarely takes holidays

This can be an indicator that an employee does not want colleagues to have access to the accounts or records in their absence and possibly expose wrongdoing.

3. Signs of recent stress

Quite often, employees who are committing fraud are under some kind of stress or emotional pressure that forces them to act in this way.

Sudden debt, drug addiction, divorce, gambling, are some of the many factors that may lead to the problem.

4. May have over-extended personal finances or excessive lifestyle

Greed is one reason for committing fraud. A lifestyle that is inconsistent with income and excessive personal expenditure may indicate fraudulent behaviour.

5. Refuses promotion or job rotation and gives no credible reason

These are both unusual traits.  If an employee refuses on more than one occasion it could indicate an unwillingness to 'let go' in case a deception is found out.

Similarly, if an employee insists on working in isolation away from others when it is not always appropriate it could be a warning sign. 

6. Defensive mechanisms

 Business owners should be aware of employees who invent illnesses as a defence mechanism to divert attention and avoid being questioned about their handling of transactions and accounts.

There may be good reason to be extra vigilant. This is particularly the case where answers to straightforward questions are inconsistent.

7. Excessive secrecy - avoiding internal reviews

Be wary of colleagues who are avoiding or postponing scrutiny, such as internal audit reviews, for seemingly plausible reasons.  This should not be accepted repeatedly.

8. Inflated expenses

Employees committing fraud may also overstate their expense claims in addition to their main crime.  Monitor expenses and watch for perennial over spenders or spikes in claims.

9. Accounts not reconciled to underlying records

More than half of company fraud is committed by management and directors.

One management fraud is to manipulate the financials to show that the business to be performing better than it really is.  Oten, in these situations, key accounting reconciliations are suspended to enable the manipulation to go undetected.

10. Posting to vulnerable balance sheet accounts

In order to cover fraudulent activity the perpetrator will need to process accounting entries to conceal the underlying transaction.

Usually, balance sheet accounts that are rarely fully reconciled are used, such as suspense accounts or VAT or PAYE

If an unexpected build up of balances occurs on these accounts it needs to be fully looked into.

1. Check employees

Thoroughly check the qualifications and background of people in positions of trust as part of the pre-employment process.  Include credit reference checks and make potential employees aware that you will do so.  Any reluctance to agree may indicate a background such as bankruptcy or previous fraud.

2. Restrict information access

Set clear limits on who can access confidential information and monitor the access.

3. Bank authorisation

Make sure you have absolute control of the bank mandate.  Require at least two signatures for cheques, and have a secure BACS authorisation process.

4. Bank statements

Always open bank statements yourself, or look online daily.  Look for unexplained bank charges or unauthorised transactions.

5. Change passwords routinely

Change security passwords for access to bank accounts, accounts software and other sensitive data routinely.  Track the issue of passwords.

6. Delegation

If you delegate to others, make sure you keep overall control and know what your colleagues are doing.

7. Rotate / share jobs

Rotate jobs periodically, or in a smaller business consider job sharing so that colleagues have visibility of what each other does.

8. Holidays

Ensure holidays are taken in accordance with the Working Time Directive regulations and are not voluntarily waived.

9. Anti-fraud policy

Have a clear anti-fraud 'whistle blowing' policy in place where colleagues know the signs, how fraud may endanger the business (and the employment of everyone) and how to report possible fraudulent activity

10.  Outsource - it's safer

Instead of managing the risk internally, outsource your bookkeeping/accounts and payroll.  It offers the highest degree of security and continual auditing.