How to stop your business from losing to low-tech fraud

VIRTUALLY ALL BUSINESS owners encounter fraud at some stage. While technology enabled scams like invoice redirection and telecom fraud tend to grab the headlines, traditional low-tech scams have not gone away.

Here are some common examples of low-tech fraud, along with some tips on how to guard against them.

Payroll fraud

Payroll fraud can be very costly, especially if issues go unnoticed for a long period of time. Some examples of payroll fraud include:

• Staff members lying about hours worked or commissions earned;
• Payroll operators keeping a former employee on the payroll and diverting the salary to their own account;
• Staff members asking for a pay advance and not repaying it.

Having good internal controls with robust approval procedures that are consistently applied, along with checking payroll reports to verify payments, can help protect your organisation against payroll fraud.

Expense account fraud
There are various ways in which a dishonest employee can fiddle business expenses – from submitting forged receipts to double-claiming for expenses, or staying in cheap accommodation but submitting expenses for an expensive hotel.

The best way to protect against this type of fraud is to implement appropriate checks and approval procedures before reimbursing employee expenses.

Theft
Theft doesn’t always involve loss of cash. Misuse of company facilities such as photocopying or taking stationery for personal use, inappropriate use of company vehicles, theft of customer information, stock or intellectual property are all examples of theft that can cost your business money.

Regardless of whether it’s situations like these, or stealing from petty cash or messing with accounts, theft by employees can be very difficult and time consuming to deal with.

As is always the case, prevention is better than cure. Strong policies and good communication can help prevent problems arising. Employees should be aware of your expectations regarding honesty and integrity, your disciplinary code, and the consequences of failing to adhere to company policies.

Supplier fraud
This can occur where a supplier invoices for an amount in excess of the agreed price for a product or service.

Supplier fraud sometimes involves collusion with an employee. For example, where VAT is paid to a non-VAT registered supplier or an employee accepts an inducement from a potential supplier. Implementing robust procurement procedures is the best way to protect your business against these types of fraud.

Customer fraud
Customers can attempt to defraud your business by claiming that a delivery has not arrived or that a product is faulty, returning a product that they did not purchase from you or even attempting to return a product that they stole from you.

While it is difficult to eliminate these types of fraud, policies such as requiring receipts can help to protect your business.

Other ways to protect against low-tech fraud
Depending on your business, there are various other tactics you can use to spot problems and defend against fraud. These include:

• Daily/weekly bank reconciliations;
• Robust approval/authorisation procedures for payments;
• Security training for staff;
• Shredding confidential waste paper; 
• Controlling visitors entering your premises, e.g. requiring them to sign in at reception.

Think about where the fraud opportunities exist in your business as this will help you work out what protective measures need to be put in place.

It’s a good idea to seek professional advice as there can be potential pitfalls in areas such as breaching privacy rights or failing to comply with legal requirements.

Teresa Campbell is the people and culture director at PKF-FPM Accountants Limited. A version of this column first appeared on CharteredAccountants.ie.

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