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Face up to Fraud

You think you know someone well and you trust them with your money. But the harsh reality is that fraud or theft could be happening right under your nose. After all, Bernard Madoff was deemed a safe pair of hands by friends-turned-investors who now find themselves victims of his alleged $50bn fraud.

The Madoff case holds lessons for us all, particularly the owners of SMEs who only find out about fraud and theft when it’s too late. Businesses are often not able to fully recover from an internal theft so it’s important to ensure that the necessary controls are in place and the risk of employee fraud is managed.

The first step is to accept the fact that fraud can happen to any business. The next is to set an appropriate, ethical example to employees which includes fair play and treats them with respect. Raise awareness by asking staff to identify ways in which fraud could be committed within your company and how it can best be avoided before developing a code of conduct that explicitly prohibits employees from committing fraud, conflict of interest and other illegal acts.

Other simple and affordable measures to combat fraud include:

• Conducting careful background checks before hiring staff, particularly if they are operating alone
• Verify the credentials of all new suppliers before authorising them to supply your company
• Take note of employees who appear to be living substantially beyond their means
• Ensure all expenses are properly approved
• Implement the latest cheque security measures and protect the company against alterations by adopting electronic transfers for large payments and using direct deposit for payroll.
• Review original bank statements and look out for unexpected overdrafts or declines in cash balance before passing to your bookkeeper
• Ensure that bank statements are reconciled each month and review the bookkeeper’s work from time to time.

For further advice please contact your HWB director or Alan Williams on 023 8046 1200.

Nothing in this bulletin constitutes legal or other professional advice. You should not rely on any information contained in this briefing as if it were legal or professional advice.