SCAMS, FRAUD, AND THE JOYS OF BEING IN BUSINESS
Many will have been shocked by the story emerging from the US earlier this year of the missing Madoff millions - or rather billions. One of the features of this scandal was that a high proportion of his investors knew Mr Madoff personally and trusted him with their money. The numbers are bigger, but the plot is much the same as the Barlow Clowes saga that brought misery or ruin to many in this country a few years ago. This perhaps underlines the dangers of thinking you know someone and, in consequence, perhaps not being as careful as one might otherwise be.
According to the KPMG “Fraud Barometer” the value of criminal frauds prosecuted last year reached a 13 year high, and the amounts have always risen during recessions. Last year managers, employees, and customers were prosecuted for £300 million, or 3 times the amount in 2007.
I am writing to you today to make sure the lesson learnt is not forgotten. Some form of fraud or theft could be happening in your business right under your nose. Are your internal controls strong enough to catch it?
Attached is a useful checklist to help you think about the risk of fraud in your business.
Often small business owners only find out about fraud and theft when it is too late. And very few businesses are able to fully recover, if at all, from an internal theft. Having good internal controls means you can focus on doing what you do best, building your business.
To discuss further please contact us.
Fraud Checklist
“Fraud is a potential threat to every company, including small and medium entities. The risk of fraud can be managed. The following is a checklist of simple and affordable measures on managing the risk of employee fraud, including some technology-based measures that can be adopted when the threat of fraud is higher.
- Accept the idea that fraud is commonplace and can happen at any business. There is a difference between prudence and paranoia, but there is also a difference between “safe” and “sorry”.
- Set an appropriate ethical example for employees to follow, and treat them with respect and fairness, including fair play. If you “filch” cash, or put invalid expenses through your own business, employees may just take the hint: copies of our flyer “Don’t Rip Off your own Business” are available on request!
- Some experts suggest that you ask your employees to identify ways in which someone could commit fraud at your company and the ways to avoid it, but please think this through first.
- Adopt a “trust, but verify code”. If you need only one bookkeeper, conduct a careful background check before hiring. Take note of employees who appear to live substantially beyond their means.
- Verify the credentials of all new vendors before they are authorised to supply the company. We can help if you do not already have some formal credit checks in place. Periodically review vendors to identify possible improprieties (if we only place one order a month, why are there 2 or three invoices on every statement?).
- Make sure all disbursements are properly approved.
- Protect yourself against cheque alterations by adopting electronic transfers for large payments, using direct deposit for payroll, placing a financial limit on cheques and implementing up-to-date cheque security measures.
- Review original bank statements before your bookkeeper does. Keep an eye out for unusual transaction, unexpected overdrafts or declines in cash balance.
- Make sure bank statements are reconciled each month and that an expert adviser, such as your accountant reviews the bookkeeper’s work periodically. Make sure you are given the bank reconciliation each month – even this is a strong deterrent.
- If something seems odd, whether it is a disbursement to an unfamiliar vendor or unexpected costs, consider the possibility of fraud.
- If you do uncover apparent fraud, think and then act.
So ... do be careful, but don’t have nightmares – sleep well!
