How to keep your business safe from fraudsters
A QUARTER of frauds in business result in losses of over $1 million and the average cost of a fraud is more than $150,000.
That means three-quarters of frauds occur at a smaller scale, making small business a prime target.
Common examples include: falsifying records such as supplier invoices; personal use of business resources; obtaining kickbacks or bribes from suppliers or contractors; acquisition of company property at less than market value; or misuse of confidential company information .
So what sort of environment creates the perfect storm for a fraud to occur:
- Large volume of transactions
- Management or staff stretched to the limit
- Poor culture, morale
- Heavy reliance on manual controls
- Inadequate supervision in key areas
- Minimal staff rotation
- Little or no detection mechanism.
What should you do in your business to minimise both the chance of a fraud occurring and the damage caused if it does
- Undertake background checks and listen to other warning signs given by referees when recruiting
- Review of financial data particularly exception reports and follow up
- Segregation of duties particularly in the area of cash in/cash out and stock in/stock out. Where segregation isn't possible implement adequate review of staff actions
- Ensuring staff take regular annual leave breaks so staff rotation is necessary
- Carry appropriate fidelity and cyber insurance and notify your insurer promptly
- Take action fast once a fraud is identified including contacting your solicitor, suspending the employee, etc.
As registered company auditors we have the expertise to help you establish the internal controls and systems to prevent fraud; determine if a fraud has occurred; and help quantify it and obtain evidence if it has.
We have recently been assisting a small business that suffered a significant fraud.