Fraud – is your business at risk?
Fraud by employees in positions of trust is a significant business risk.
It can happen to businesses of all sizes, from small family businesses to large corporates, and in all sectors, from retail and manufacturing to charities and schools.
It can involve bookkeepers, accountants, financial directors, heads of departments, head teachers……. people who are close colleagues and personal friends, even relatives….. anyone who is in a position of trust and responsibility.
According to accountants KPMG the typical fraudster is male, 36 – 45 years old, works in the finance function or in a finance-related role, holds a senior management position, has been employed by the company for more than 10 years, works in collusion with another perpetrator,
Usually, fraud is not detected until a significant loss has occurred, perhaps over several years. By which time it may be too late to recover the losses and the business may be at risk of insolvency.
Fraud can’t happen in my business……. or can it?
The majority of businesses employ trustworthy people. But sometimes the most trustworthy people experience changes in their lives which lead them to behave out of character.
Identifying that a colleague is stealing from your business difficult if the culprit is in a position of trust and has the knowledge and ability to manipulate the financial records and books.
However, there are a number warning signs to look out for which may indicate that fraud is being committed.
Our outsourced bookkeeping, accounting and payroll service provides secure controls to eliminate the risk of fraud or theft.
Outsourcing the day to day bookkeeping and accounting, together with payroll, removes the opportunity of internal fraud.
Our ‘virtual accounts office’ handles everything off-site on our premises, giving total confidentiality. None of your employees need know the details of your business finances. Access to company funds is fully regulated and audited.
Ten warning signs that fraud is happening in your business
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.