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When the risk of fraud comes from within

07 March 2016

Our latest Fraud Track report highlighted that the total value of reported fraud in 2015 was £1.5bn, an increase of 110% from the previous year and the highest value since 2011.

One of the most notable fraud types identified by the survey was employee fraud, committed by a member of staff against their employer. The report revealed a total of £7.3m was linked to this kind of fraud. In one case a bank employee assisted hackers in their bid to steal £1.25m by fitting a keyboard video mouse to her workstation. She received a prison sentence of 3 years. In a different case an employee of a care home stole funds intended for her employer by giving her personal bank details instead of those of the company to families of residents of the care home. She later admitted stealing more than £100,000.

In this article, we consider how companies might act to prevent frauds and protect their business.

How can you spot fraud?

It is important to be alert to the types of fraud that might occur in your organisation, particularly in your finance department. Some fraud, by its very nature, is difficult to spot by looking at behaviours alone because fraudsters are usually experts at concealing their illicit activities. However there are some common indicators which might point to problems within your organisation.

  • Dominant management style: Does a senior member of staff regularly override controls and procedures?
  • High staff turnover: Do staff stay only for a short time within the finance function? Is there a regular use of temporary resources to cover for absences? Is staff morale low?
  • Lifestyle of employees: Do employees seem to have a lifestyle which exceeds their remuneration?
  • Whistle-blowers: Is there a whistle-blower policy or hotline? Whistle-blowers could be vital to finding out what is really happening in your organisation. Does your organisation listen to what they have said and follow up where necessary?
  • Forecasts and variances: Is there an unexplained discrepancy?

Controls and defences

To protect your business from fraud there are a number of controls and defences which can be implemented. Firstly, it is essential to regularly review all access rights and permissions over standing data. This ensures that, if a member of staff leaves the company, their permissions to access the data are disabled.

Secondly, a systematic review of exception reports will help to identify anomalies that may be caused by fraudulent action. Consider verifying changes to supplier data with your supplier. For example, changes to bank account details and names of contacts may be worth further investigation.

Ensuring that there is segregation of duties can also help to protect against fraud. Payments should be made and authorised by separate people so it should not be possible for one person to make payments and change standing data without authorisation.

Conduct frequent reconciliations of the bank account and the asset register in order to review instances where assets are missing or unreconciled payments are made from the bank. Inter-company transactions are often used to disguise frauds and, therefore, the reconciliation of inter-company transactions is another useful tool to detect and prevent fraud.

Zero-based budgeting will prevent a fraudster from establishing a fraud within the budget and then continuing unchallenged from year to year.

And finally, consider the physical security of your department; it may be worthwhile ensuring that the area is covered by CCTV. If passes are issued to visitors, they should only be operational during normal office hours, in most circumstances visitors will not need to have access to the finance department.

Read the FraudTrack Report.

If you would like to discuss fraud prevention in more detail please contact Kaley Crossthwaite.