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4 Typical Frauds and how to protect your business against them.

4 Typical Frauds and how to protect your business against them.

Are you sure fraud could never happen in your business? If you’ve not thought about prevention, you’re risking theft of your money/goods by an insider.

Fraud is endemic in the small business world as well as in much larger businesses.

It’s often carried out by directors, but accountants and bookkeepers can get pretty skilled at it too. 

It’s usually done quite boldly. If internal checks are lax the company directors are unlikely to discover anything for a long time. 

It can start in a small way. As the culprit finds how easy it is they get greedier and the sums stolen increase in size. 

The average fraud can last a few years. 

Could these frauds happen in your company?

Fraud 1. The cashier for an accounts office gambled some of the money away, presumably on the basis that his winnings would cover the deficit. He never took holidays and was only ill once. The one time he was taken ill and not at work, the business needed to access the safe. They asked him to send back the key and with the key came a letter of resignation. Because, of course there was much less cash in the safe than there should have been. His gambling hadn't worked out. There were never any checks on cash balances or his work. This fraud had apparently been going on for several years. This is called “teeming and lading” and it is rife in the business world.

Fraud 2. An accountant in a small company was given a company credit card to buy things on behalf of the directors. He was also responsible for matching receipts to the credit card statements and entering data to the accounts. Total expenditure was quite high, with the directors using the company card for personal items as well as business stuff, but that total went through the bank account each month as a lump sum. So it wasn’t easy to see when the accountant began to start using the company credit card to pay for luxury items for himself. The directors’ own purchases were of a similar cost. There were no checks on the accountant's work. Again a popular fraud. There was a high profile case of this in a merchant bank not long ago.

Fraud 3. The office bookkeeper was responsible for running the payroll as well as bookkeeping and paying out money from the bank account. She felt underpaid and undervalued, according to other staff interviewed later. Perhaps that's why she set up a fictitious person on the payroll, with the same bank account as one of her relatives. No-one checked her work, or the bacs file that was sent to the bank each month to pay staff.  The attitude of the directors in the company was that the accounts were not important and therefore they paid the cashier poorly in spite of her responsible job. The whole scenario is typical for this sort of fraud.

Fraud 4. A director in a large business set up a fictitious supplier account. The company regularly received large invoices in the post for what later turned out to be nonexistent services provided to the department for which he was responsible. Of course he authorised payment of those invoices. Due to his seniority and unpleasantness other directors were initially reluctant to challenge him after the internal audit department expressed concerns. The fraud went on for longer than it should have done because of this. It is said that most frauds are committed by directors. That makes sense given their powers.

How to avoid fraud in your business

When recruiting new staff, always take up references by calling their previous boss. Because so few companies do this a serial fraudster can go to their next job and do it all over again.
Insist all staff take their holidays. 
When you have enough staff available, try to separate the duties so that for example there is a different person in charge of sales invoices, supplier invoices and bank. 

A separate person from the cashier should have the job of entering data to the accounts. Encourage accounts staff to question things that look odd.

5 Things to do if you've just one person doing the bookkeeping and paying into/out of the bank 

1. Check office petty cash regularly, comparing what’s been entered to the accounts to what is actually in the petty cash box. If there is a deficit and the box is not kept locked with restricted access, then money will tend to disappear, often because the person taking the cash couldn’t be bothered to put in a corresponding receipt later. Try to stop any cash being held on the premises.

2. Check supplier invoices and listings of net pay from the payroll before authorising/making payments. Are you aware your company is dealing with these people? Make more checks on people/companies whose names you don't recognise before paying them.

3. Check payments and receipts into the bank have been correctly entered to the accounts. You can do spot checks on (say) every 10th item.

4. Check credit card payments are reasonable and regularly look at statements to make sure what's being bought is authorised.

5. Make sure that only the senior managers have the master password to the bookkeeping software, so that a fraudulent employee cannot keep others out by changing that password without notice.

Supervision is key to the prevention of fraud. And checks on the work of accounts staff can help stop errors being made and deter fraud, as well as giving you an idea of how well they are handling the work. 

Call Frances on 01737 559211 for more advice on how to keep your money safe.