How can I protect my business from fraud?

A widely reported ‘fraud epidemic’ is blighting UK businesses. Can you spot the warning signs?

The financial impact of fraud can be serious, whatever your industry – so we’ve put together a quick guide to help you spot the warning signs of fraud in your business.

Fraud is now estimated to cost businesses and individuals in the UK around £137bn each year. This is according to a recently-published major study by the University of Portsmouth Centre for Counter Fraud Studies. Data also suggests that the COVID-19 outbreak has highlighted significant holes in companies’ cybercrime defences, citing a 19.8% increase in fraud across England and Wales during the pandemic period.

So what do organisations need to be focused on to fight back against this scam culture?

Understand the types of business fraud

Business fraud, whilst often sophisticated in its planning, used to be relatively confined to a small number of methods, such as embezzlement, basic identity theft, payroll fraud or misuse of policies or insurance claims.

In today’s digital world, business fraud has become even more complex with virtual reality colliding with physical reality to make defrauding businesses more prevalent than ever. In addition to the more traditional risks, business owners must now also understand the implications of things like cryptocurrency scams, synthetic identity fraud, and digital payments fraud.

Be aware of the fraud risk in your business

Fraud prevention needs to be an ongoing concern, in order to protect the health of your business and maintain a transparent and honest company working culture. Small businesses are at a higher risk of fraud, due to them more often having less robust systems and cyber security procedures in place for fraud identification.

The most obvious indicators of business fraud are issues with balancing the business accounts, and notable changes in employee behaviour. Some examples of signs that an investigation is required:

• An employee is suddenly submitting larger or more frequent expenses: a sign that they might be making false claims.
• An employee is working significantly longer hours: either claiming to be working more hours than they actually are, or working out of hours at times when there is nobody around to observe fraudulent behaviour.
• A bookkeeping employee is keeping close control of company books and is reluctant to share them with others: this could be an attempt to hide fraudulent transactions or activity.
• Company credit card bills have started to increase over time.

Business fraud prevention strategies

The Association of Certified Fraud Identifiers advises that fraudulent activity lasts, on average, for around 18 months before being detected. Obviously, the longer such activity persists within an organisation, the more costly and damaging it can be.

Research published in the Harvard Business Review suggests that fighting fraud begins with ensuring that employees are aware of the warning signs and know how to respond to them with urgency. A clearly-defined and well implemented anti-fraud policy is therefore essential.

Strategies for fraud prevention within a business could also include:

Focus on accurate record keeping, regular reviews and spot checks

Business records must be handled and managed properly so that you can prove the transactions are legitimate and free of errors. Internal audits are an essential way to add robustness to your governance and to independently verify the accuracy of business records. If your business is not required to conduct a statutory audit, it’s worthwhile considering a periodic internal audit process to protect your organisation from fraud.

Distribute responsibility

Ensure that no single employee ‘holds the keys’ to the entire financial picture of the business. This reduces the potential for fraudulent intentions to be acted upon.

Invest in background checks

Particularly important for recruiting into financial roles, background checks on the candidate will clarify their financial history and identify any causes for concern.

Review your internal control processes

Internal systems and processes can be a target for business fraud. Ensure that your stock control systems, credit check processes, expense systems and other procedures are robustly implemented and managed to minimise issues such as stock theft and fraudulent transactions and claims.

Perhaps most important for those businesses with a high fraud risk profile is knowing when to bring in the professionals. Modern-day business fraud can be as technical as it is unpredictable, and it isn’t always obvious it has even taken place until it’s too late. Being proactive is key, but being prepared is even more important.

IF YOU HAVE ANY CONCERNS OR HAVE SPOTTED SOME WARNING SIGNS OF BUSINESS FRAUD IN YOUR ORGANISATION, WE CAN HELP IN A NUMBER OF WAYS, INCLUDING AUDITS AND A RANGE OF CORPORATE FINANCE SERVICES – please GET IN TOUCH IF YOU’D LIKE SOME ADVICE.