Fraud detection measures

BUSINESS fraud happens. That’s it, I’ve said it!

This year’s National Fraud Authority Annual Fraud Indicator has put the loss to the UK economy from fraud at £38.4bn, representing a cost per adult of £765 per year. The fact that businesses (including FDs) talk little about fraud doesn’t mean that it doesn’t happen and the sooner we wake up to this fact, the sooner we can start to deal with it.

The defrauding of a company by its own employees is far from unusual. Research by KPMG analysing 348 fraud investigations in 69 different countries found that the typical fraudster is a male senior finance professional aged between 36 and 45. A third of perpetrators had been employed by the company for more than 10 years and 60 per cent for more than five years, with most working in collusion with another. Bear this in mind next time you query an unusual transaction by one of your peers.

The bottom line is that the issue of fraud cannot and should not be brushed under the carpet. It needs acknowledging and dealing with before it’s too late.

Workplace fraud can vary from fiddling expenses and procurement fraud through to theft of assets and stealing money from the company’s bank account. Each type of internal business fraud needs to be identified and in each case, policies, internal controls and fraud prevention and detection technologies need to be implemented.

Take procurement fraud as an example. Companies should look at ensuring that an individual is not in charge of more than one procedure in the procurement process. For instance, raising the order, authorising the order, sourcing the supplier, placing the order, processing the purchase invoice and then paying the supplier are all key cogs in the procurement wheel, which are open to abuse if the same person has too much control within this process.

Companies should also ensure that all spend is properly authorised by the right people. Are strict authorisation routes in place and how is the authorisation process controlled and audited? Processes and controls can be supported by technologies to enable transparent procurement and budget checking. Fraud technologies can also provide an extra layer of security, ensuring that suspicious procurement activity is detected and management is automatically alerted so that action can be taken.

From a practical perspective, there are numerous steps that can be taken to both reduce the risk of internal fraud and detect any suspicious activities. However, implementing these steps may well be the easy part. It’s getting over the taboo of discussing fraud that may prove the biggest obstacle for many organisations. With fraudulent activities costing organisations billions of pounds in lost revenue each year, raising the issue of fraud could well prove your most valuable discussion of 2011.

Simon Fowler is managing director of the commercial division of Advanced Business Solutions