In the second of a series of four articles on financial forensics and fraud, we examine the issue of how companies may become vulnerable to fraudulent practices.
In the business environment, there are many challenges along the road to success: economic factors, market shifts and competition, to name a few. But fraud is an occurrence that often takes business owners by surprise because, while they may have taken some steps to prevent fraud, there are always people looking for a weak link they can exploit.
Is your company at risk of fraud? The simple truth is yes, it is, no matter how big or small the company is. However, having an understanding of the types of fraud that occur and the methodologies that fraudsters commonly use can help a business be more proactive in fraud prevention and can help reduce the risks of it taking place or mitigate the consequences.
Key insights into fraud prevention
The fraud prevention team at Grid Forensic Accounting has some valuable insights to share. While business processes and systems may be complex, fraud is about one thing – money. So having an awareness of money trails within the business and which departments are involved is one of the first steps towards fraud prevention.
A big problem is that businesses are often too trusting and only take stricter steps to prevent fraud after it has already occurred. This is where it pays to consult with fraud prevention specialists. Because fraud is an issue they work with on a regular basis, they know what to look for, what loopholes to close and can advise on simple methods to employ to help reduce the risk of fraud in a business.
What to consider when putting steps to prevent fraud in place
Online banking systems: Few businesses operate on a cash basis; instead, banking transactions and payments are usually done using online systems. From one perspective it may seem safer, yet cybercriminals are creative, always looking for ways to gain access to accounts. Limiting who has access to online banking is an important fraud prevention method, as is creating unique user access. This not only identifies and creates a record of who accesses the bank accounts but can also limit what functionality they have access to.
Accounting, payroll and inventory systems: Fraud can occur when making payments to suppliers, employees or clients. The more systematic the process, the more it is controlled and managed. With checks in place, the harder it will be for fraudsters. Leaving bank statements or other important papers lying around can create opportunities for people to gather information that could later be used to commit fraud. A good fraud prevention strategy takes all these factors into account.
Data security: In recent years there has been a trend where hackers access company information – in particular sensitive client information, and then hold it ransom for a fee. This can not only ruin a company’s reputation, it can also be financially crippling, in more ways than one. The EU has the GDPR law that relates to the security obligation companies have to keep a client’s information safe, which many countries are adopting. But regardless of the law, companies have an ethical obligation to keep data safe – it just makes good business sense. Fraud prevention methods include creating strict password protocols (including passwords being changed regularly). Encryption is another method, as well as conducting regular back-ups and retaining copies of the back-ups in more than one location and format.
Employees: Unfortunately, fraud is often linked back to employees. Therefore, steps to prevent fraud should include conducting detailed background checks. On-site security and surveillance systems can also help to monitor employee movements, including the times they clock in and out – helping to prevent payroll fraud. Strong security systems can help to discourage fraudulent activity especially if employees are made aware of them.
Why having a fraud prevention strategy can save your business
Most fraud starts small, and unfortunately many businesses only discover it once it amounts to a sizeable financial loss. Without steps to prevent fraud, the deceitful activities could be going on for months or even years as the company is slowly bled of its resources. It can be very difficult to recover from this. A fraud loss can impact cash flow and the ability to pay suppliers, which in turn impacts the company’s reputation. Clients may become wary too, concerned whether you’ll be able to deliver the promised services or products once they’ve made payment.
Considering all of this, having a professional on your side who can identify possible weak areas and suggest solutions as part of a detailed fraud prevention plan can be the best insurance you could have against fraud. At Grid Forensic Accounting, we specialise in helping you reduce the risk of fraud. Talk to one of our fraud prevention specialists if you’d like to find out more.