The Burton Sweet column

Burton Sweet’s Rachel Finch highlights how you can minimise the threat of fraud within your business.

Fraud can be one of the biggest worries when running a business. From embezzlement through to people stealing stock, stationery, few businesses are immune to the risk.

All businesses need to be on the alert for fraud, particularly during recession, where history shows that rates increase. It is actually estimated that fraud costs UK businesses as much as £5 billion a year!

It is therefore important that all business owners review the potential threats to their business, both internally and externally and put plans to place to minimise their exposure. Here are my top tips to businesses to minimise the risk of fraud:

Internal Controls

Effective internal controls can drastically reduce the risk of fraud in your business – but each control will have an administrative cost. You need to evaluate the time and cost of each control against the perceived risk of fraud.

However, the following measures are relatively inexpensive and effective controls all businesses should use:

∙ Separate key duties – wherever possible separate or rotate duties amongst several key employees. Having the same person in charge of more than one procedure, such as placing orders, running credit checks, delivering goods etc, is tantamount to inviting fraud.

∙ Purchase and payment authorisation – decide on a reasonable figure and ensure that single transactions above that amount require additional authorisation, either from you or a trusted senior employee.

∙ Compare actual to budget expenditure – the most frequent fraudulent transaction takes part via expense accounts. By comparing budget to actual expenditure by employees you can review discrepancies and identify any inappropriate transactions.

Stock and Equipment

Pilfering and theft are very common in most areas of business. Theft of small tools or items by employees for personal use or resale can add up to large losses for your business.

If questioned about stock he or she might claim it is damaged, used up, or being stored offsite.

To prevent this remove keys from unattended equipment and put alarms on major pieces of equipment. Have an inventory for all items of stock and stationery – which is reviewed regularly. Light all storage areas, limit the number of entrances to the site and consider cameras or CCTV.

Purchasing and Payroll

The department responsible for paying out money also offers opportunities for fraud. For example, an employee might invent a non-existent supplier and pay phoney invoices for an account that is basically his or her own.

An employee running the Payroll may use his or her bank account to credit other employee’s wages.

To prevent these kinds of fraud check selected invoices for signs of doctoring, check supplier invoices for unusual amounts, pricing or volumes, and keep an eye of payroll cheque distribution and monitor unclaimed cheques.

Also review bank account details for any Payroll payments made via BACS or direct credit.

Cultivate honesty and ethics

Put an ethics statement in your staff handbook and tell employees you expect them to adhere to it. Encourage employees to communicate with you when they see something suspicious.

Let your staff know you will check computers and files. If you have suspicions keep checking on employees – if it bothers them, ask why.

Purchase employee theft insurance

Most businesses don’t cover the theft of money and securities unless you purchase a special crime policy. A special employee theft policy can cover you both inside and outside the office.

Identity Fraud

This is an ever increasing, well publicised, problem in the UK. Businesses can help protect themselves by putting in place the following procedures:

∙ Storing sensitive documents in a secure place and shredding before disposal
∙ Limiting access to sensitive information to yourself or trusted key employees
∙ Checking customers credentials before extending credit to them
∙ Keeping key bank account details out of the public domain
∙ Ensuring firewall and anti-virus software is up to date

Whilst the risk of fraud cannot be fully stamped out, all businesses, no matter how small, can and should take steps to reduce their exposure. Taking these steps will benefit not only the owner, but also the employees and the customers, as you will be reducing the risk of your business failing.

Rachel Finch is the Tax Advisory Partner at Burton Sweet Chartered Accountants and Business Advisors. She specialises in providing advice to business owners and individuals on a wide range of issues from Income Tax and Corporate Tax through to International Tax and Corporate restructuring.

To find out more about Burton Sweet visit: http://www.burtonsweet.co.uk or call them on: 0844 225 0750