Fraud: Every business is at risk.

Fraud is one of those things many businesses prefer to think of as happening to other people, more often than not one of the big boys like UBS in a scandal that hits the headlines. But fraud can happen to any business, of any size, and is particularly damaging, from much more than just a financial position, to the smaller company. Sean Davern, Cliff Ryan and Tim Harvey of Quartz Services UK look at the risks and what you can do about it.

Most large companies are alive to the threat of fraud. They have survived because they have taken the possibility of fraud seriously; most will have a fraud policy and specific personnel to prevent, identify and deal with fraud.

Often small to medium-size companies are too busy with their day to day business to consider the possibility. This is why fraud often has devastating effects on such companies because it has been going on for some time, undetected. When it is revealed, the damage, whether financial loss or reputational, can be fatal.

The ACFE Report to the Nations anti fraud survey of 2011 found: “The industries most commonly victimized in our study were the banking/financial services, manufacturing and government/public administration sectors.”





It won’t happen here

But, even if your staff don’t have access to cash or finances, there is still risk. Fraud has many forms and each member of staff could be responsible for a fraud against your company. The very fact they are part of your business means that they have a crucial role with responsibilities. If you examine carefully the role of each member of staff you can identify the opportunities for dishonesty.

In one situation, one man (X) was hired as a temporary assistant in the accounts payable department of a company. His role was fairly menial, mostly assisting others with their workload. As part of his role he would enter invoice details into a computer which was used to print company cheques, batches of around 50 a day were then taken to the signatories for signing. The cheques were dispatched and the invoices filed in a filing cabinet. One day he took a paid invoice and entered the details onto a computer slightly changing the name from Grey to Gray (in whose name he had opened a bank account). The cheque was printed and signed and paid into the new account, the invoice filed. The cheque cleared and nobody had even noticed. Of course X knowing he would shortly be leaving the company repeated the exercise but instead of the cheques being for £271, the next two were for £35,000 and £64,000. By the time they were discovered, the bank account had been cleared and shut and the employers contacted the agency from where they had obtained X only to find they had conducted no background checks on him and his details now appeared to be false.







Getting started

Just by acknowledging the very real possibility of fraud you are making a big step, but there is no quick fix solution.

It can be daunting to start an anti-fraud policy and you may start to feel like Big Brother but one way to help people understand is to refer to a published case of fraud which destroyed a company (there are plenty on the Internet and you will be sure to find one in your industry). Talk about this case, but be positive and confirm to your staff that you are not going to let anyone jeopardise their jobs. This is why you are introducing sound procedures to prevent and deal with fraud. You may also refer to Government and the Serious Fraud Office ( advice that all businesses should have sound procedures’ to prevent fraud, and indeed the Bribery Act demands that a company have adequate procedures to prevent it.

Many procedures are just common sense:





  • Expenditures should be approved twice – from a financial (can we afford it?) standpoint as well as managerial (do we need it?)
  • Install security cameras at tills or within storage areas
  • Conduct surprise audits
  • Make sure employees know serious action will be taken if fraud is suspected
  • Remind employees of their responsibilities to report any suspicions.
And, of course, it will be easier to introduce a new member of staff to a Fraud Policy. It is worth investing in employment screening as some criminals will deliberately seek out a role where there is an opportunity for fraud. If you are going to employ a person who has access to your secret company information or finances consider what damage a dishonest employee could do. Thorough background checks are an integral part of the hiring process for any responsible company. After all you will probably have interviewed a perspective employee for 30 or 40 minutes and may have read a fictitious CV supported by paid referees…it does happen!

It may sound cynical but a wise policy to adopt is ABC:

Assume nothing
Believe nobody
Check everything

There are also a number of situations that are red flags that someone may be involved in fraud:




  • The person who is always first into and last to leave the office
  • Someone who never takes a holiday or who is living beyond their means
  • Those with drink, drugs or gambling issues or those who may display irrational or overreaction to minor situations


Gifts or bribe?

In some industries it is normal to receive gifts from suppliers or clients, such as the odd bottle of Champagne or tickets to the Rugby. But you need to make a judgement call on where gifts end and manipulation starts.

Have a policy and record keeping process for gratuities. Specify a limit and frequency. You may find it acceptable for staff to receive gifts at Christmas (once a year) of up to £200 of worth, be it goods, entertainment or events. But make sure each gratuity is recorded, who gave it and who received it. And, of course, your policy will clearly state any gratuity offered to influence business is a bribe and will be declined and reported.

One fraud prevention tool we haven’t mentioned is your instinct. If you have a gut feeling something is happening, then it probably is. Try to identify what it is that is making you feel uneasy and then call in professional help to take you through what to do next.