Monday, 19 February 2018 15:55

How to Prevent Fraud in Small Businesses

The most cost effective way to limit fraud losses is to prevent fraud from occurring in the first place. Easier said than done of course. Small businesses have significantly fewer anti-fraud controls than large organisations. This gap in fraud prevention and detection leaves small businesses susceptible to frauds that can cause significant harm to their limited finances.

Small businesses are especially susceptible to fraud because they lack basic accounting controls, tend to have a higher level of trust in staff and are less likely to be audited.

Common fraud schemes more prevalent in small business include the following:

  • Billings from fraudulent vendors/suppliers
  • Skimming money from unreported sales or collections
  • Cheque Tampering
  • Issuing fictitious refunds
  • False Expense Reimbursements
  • Financial Statement Fraud.

Fraud losses on small businesses are compounded as they typically have fewer resources with which recover the funds stolen from their business.

It is vital therefore, that small businesses ensure that they put in place measures to mitigate against the threat of fraud. While it is understandable that small businesses do not have the resources necessary to invest in some of the more expensive internal controls, several measures can still be implemented with minimal investment.

Fraud Training for staff members

Training should clearly set out to employees what constitutes fraud. It should reflect the type of threats that exist against the business in the industry, how to identify it and how to take steps to report fraud. More importantly, the training should clearly reflect the consequences to the business should fraud be perpetrated against the business.

The training should also include the business’s zero tolerance policy to fraud clearly indicating what steps will be taken against those who commit or attempt to commit fraud against the business and how any allegations of fraud will be investigated..

Ensure there is an effective fraud reporting mechanism in place

Increasing would-be-fraudsters perception of being caught is one of the main ways a business can deter those thinking of committing fraud.

One method of doing this is to make employees aware of how to report concerns about known or potential fraud and wrongdoing. To encourage staff to come forward, staff should be aware that they could report suspicious activity anonymously and/or confidentially and without fear of reprisal.

An anonymous reporting channel, such as a third-party hotline, should be made available to employees. The small business should also ensure that their reporting policies and mechanisms extend to vendors, customers and other third parties.

Ensure there is an effective Fraud Response Plan in place

Encouraging employees to speak up, without implementing an effective response system, will fail to effectively deal with the harmful effects of fraud. A small business should have an effective Fraud response plan in place, which will allow their business to investigate matters in a swift timescale, taking preventative action before the reported incident further impacts its business.

SeeHearSpeakUp delivers whistleblowing and investigation solutions to companies globally. For more information, please visit our website here or contact the team on +44 (0) 1224 625111.

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The recent media reports of abuses associated with charities working in the international aid sector has brought into sharp focus how charities deal with concerns raised in their industry relating to safeguarding failures and other forms of wrongdoing.

Issues such as bullying, harassment, or sexual misconduct are just a few of the many forms of wrongdoing which charities are vulnerable to.

Charities work with people who may be vulnerable to abuse because of their age, health or physical or mental capabilities. The public expect the highest standards of governance from charities. The legal obligation of all charity trustees is to act with due diligence and care and in the best interests of their charity. 

Because of the nature of the work carried out in the charity sector charity trustees should make sure that they create a safe environment for staff, beneficiaries and volunteers.  It is vital to develop a culture that enables anyone to report concerns, whilst making sure that those concerns are dealt with appropriately and in a sensitive manner. 

In the aftermath of the recent reports of abuses in the charity sector, the charity commission's deputy chief executive David Holdsworth said: "Charities and dedicated, hard-working aid workers undertake vital, lifesaving work in some of the most difficult circumstances across the world.

"However, the issues revealed in recent days are shocking and unacceptable. It is important that we take this urgent step to ensure that these matters can be dealt with fully and robustly."

Charities can begin to achieve this by following some key recommendations:

  • Produce a comprehensive whistleblowing policy whereby the charity’s expectations about speaking up in relation to any form of wrongdoing is made crystal clear
  • Ensure that the charity’s policies and procedures are effectively applied in practice throughout the organisation
  • Encourage transparency and shared accountability by ensuring that all concerns raised in the charity are forwarded to key senior representatives
  • Review the policies and procedures at least once every 12 months and again each time a serious concern has been raised in the charity
  • Ensure there is comprehensive information about how to raise whistleblowing concerns at the induction stage for new volunteers, beneficiaries and staff.
  • Ensure all staff and volunteers receive regular training
  • Information on how to raise concerns should be promoted across the charity and should be easily accessible on the charity intranet.
  • Provide a safe and supportive environment for raising concerns. Many employees may not feel comfortable raising concerns with their internal line-management. Charities should therefore include both internal and external reporting avenues for staff to raise their concerns.

External whistleblowing service providers can provide a safe and supportive environment for volunteers and staff to raise concerns. If you would like further information about implementation of an independent external whistleblowing service to enhance your charities fight against the dangers of wrongdoing please follow this link, or alternatively, please contact Sean McAuley, the SeeHearSpeakUp whistleblowing manager by dialing direct on +44 (0) 1224 049449.

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Suspicions of fraud that arise in the workplace almost always triggers the need for a fraud investigation. Allegations such as fraud, theft, bribery and corruption are just some of the situations that may arise in an organisation which require investigating.

Often, employers try to investigate matters internally through formal interviews with the employees involved, which are usually carried out by Human Resources personnel. When the allegations are more serious, employers may rely upon senior managers to conduct full investigations.

However, in many situations, having an employer deal directly with a fraud allegation is not always the best approach.

The appointment of an in-house investigator can be detriment to an investigation particularly as it may result in an investigator with a vested interest in the outcome of an investigation.

It is important to ensure that any in-house investigator has relevant experience, skills or qualifications otherwise basic investigative steps may be overlooked by inexperienced managers not skilled in how to gather evidence and conduct effective fraud investigations.

One option for any employer is having a formal investigation undertaken by an experienced and qualified external fraud investigator.

Experienced and qualified Fraud Investigators have proven expertise in fraud prevention, detection and deterrence. Qualified Fraud investigators exercise due professional care in the performance of their fraud investigations. Their objective shall be to obtain evidence and information that is complete and reliable.

Using an external Fraud Investigator provides evidence that a business takes concerns of fraud seriously. The external investigator reports all findings back to the business after concluding their investigation. With no preconceived impression of the parties or subject, they are able to remain independent and neutral throughout an investigation.

This independence also provides witnesses with a sense of comfort, encouraging them to speak more freely and confidently than they would when faced with an internal manager turned investigator with whom they, or their team members, have a working relationship, which may make it difficult for the internal investigator to remain impartial.

Allegations of serious fraud that require high levels of specialist investigation expertise will naturally have potential for legal action. In such scenarios, businesses are encouraged to act in favour of an external investigator. For example, if an investigation has been carried out into a serious allegation of fraud then there is a possibility of a complaint to a works tribunal.

The tribunal will want evidence to prove that the business took the complaint seriously and conducted a fair investigation from start to finish. The business can demonstrate this by engaging with reputable qualified investigators who comply with the law and who will testify truthfully without bias or prejudice therefore reflecting a fair investigation throughout the investigation process.

Should your business require any specialised help or assistance relating to suspicions of fraud in the workplace please contact Sean McAuley, Certified Fraud Examiner ( +44 1224 625111

Published in Blog