Detect Fraud in Your Business

The danger is that it can happen to anyone, at any time – no one is immune. Fortunately, every business, from the largest corporate to the smallest SME, can reduce its risk of fraud substantially with just a few basic system changes.

Let’s discuss some of them, plus we’ll share a tip on using good judgment and common sense to keep your business safe and your livelihood secure.

Few things are as devastating to a business’ reputation as internal fraud – it undermines staff morale and creates a new uncertain relationship with stakeholders such as suppliers, investors, and compliance authorities.

News bulletins and newspapers all talk of the massive corruption being unearthed in South Africa – don’t think your business is immune.

Build good control systems, particularly around procurement

The majority of fraud happens in the area of procurement which makes it a good place to start. Use your accountant here – you will need his or her expertise plus your accountant will have an independent, impartial view of your business.

Whilst every business is unique you should ensure your system has the following basics in place:

• Thorough recruitment processes for procurement staff. Check for criminal records, debt judgments and properties and companies owned (a common method of fraud is procurement staff using a company they own to become a “supplier”).  Also, do extensive background checks to ensure his or her CV is consistent with the applicant’s lifestyle. You need to satisfy yourself that the person being considered for the procurement role has integrity.

• Procedures should be robust - such as the three-quote system is used, new suppliers are carefully checked, a conflict of interest register is in place and maintained and gifts are declared. These should be in terms of formal policies that are effectively communicated to all procurement staff

• Ongoing checks are in place by management independent of procurement where buying patterns are analysed, any deviations from procedure are checked for justification and authorisation, and you continually monitor the lifestyle of the members of the procurement department.

Judgment and common sense should prevail e.g. it isn’t time-consuming to do an independent and in-depth check on new suppliers whereby you phone their number (in the current Eskom/Transnet investigations, an early indicator of fraud is the supplier being essentially a front - the telephone is seldom answered and the address turns out to be a small unmanned office).

We all know how destructive fraud is to a business – make sure you put into place the systems needed to block the internal threat in your company.

This article is authored and courtesy of CA(SA)DotNews.