Be prepared against fraud

Beagle: Channel players should have an anti-fraud checklist in place

Optimism is creeping into financial markets as national economies slowly emerge from recession. Thailand, Hong Kong, Japan, France, Germany and the US have all announced GDP growth. We also still have hopes the UK will follow.

However, it should be noted that should the recession here finish next Tuesday, business will not be better on Wednesday. A lot of damage has been done and businesses everywhere will take a long time to recover.

So the damage has been done and some businesses will fail. In fact, some should fail. Others will struggle on and survive. It is, however, the few who will use any means to stay in business for the short term that we should worry about.

I am not saying that everybody is a criminal, but when people are up against the wall they are more likely to consider ways that are less legal to stay in business.

Plus, there is the professional fraudster whose only revenue stream is from defrauding others. They know how much businesses are hurting and how vulnerable they are, so they will invest a lot in testing a supplier’s defences.

Professional fraudsters are often prepared to make large investments as they know the odds may be in their favour.

UK fraud statistics are hard to get and there are no actual figures for the IT sector. Even those figures that do appear are, I surmise, just the tip of the iceberg. That said, I have seen estimates of identity fraud in the UK alone of £1.7bn per annum.

Companies understandably do not want people to know they have been defrauded and I suspect a lot of fraud gets written off simply as a bad debt.

One of the key sets of statistics available is KMPG’s fraud barometer. KPMG’s forensic reports for Q1 this year saw the most frauds in the 21-year history of its fraud barometer. The 160 cases that came to court had a combined value of £636m.
It is a startling statistic and we might add that the number of businesses that fall victim to fraud is likely to increase as a knock-on effect of the recession.

So if you do start to worry, what should you worry about? First, are your in-company processes adequate and do your staff know what to do if you are attacked?

Put a fraud prevention checklist in place. Fraud is a cancer that can cripple and destroy any organisation, even ignoring the legal penalties that may arise if the problems are not dealt with effectively. Becoming a fraud victim can damage the credibility of your business and affect staff morale, which can lead to larger problems.

A fraud prevention policy is paramount and should be implemented by all businesses without delay if they do not have one. So how do you go about it?

Fraud prevention checklist
To assist you, an easy-to-follow 10-point checklist is included below. While this is not a definitive guide, it should be useful as a foundation for any fraud prevention system for your own company.

1. Have you established a process for overseeing fraud risks?
2. Have you selected a senior member of staff to be responsible for managing such fraud risks?
3. Are the details of this person published throughout your company? People need to know who this person is and who to go to if they suspect something is amiss.
4. Have you implemented any ongoing processes for the regular identification of fraud risks in your organisation?
5. Are these processes tested regularly to ensure they operate correctly?
6. Have you made changes to your processes that reduce fraud risk?
7. Do you have a process that promotes ethical behaviour among all employees ­ including senior management?
8. Do all employees have a code of conduct in their staff handbooks to which they can refer as needed?
9. Is there a whistle-blowing process that is regularly monitored?
10. Do you keep all staff trained up to identify internal and external fraud issues?

There is no magic to avoiding successful attack. Have the processes, make sure everybody knows what their responsibilities are, and keep your fraud avoidance processes constantly under review.

Whether it is prevention advice or after-the-event help, we believe in providing practical assistance. We, along with co-sponsors D&B, DLA Piper, Grant Thornton and F&H Risk Solutions, are there to provide a business-hours support community, the Fraud Prevention Forum (FPF).

Our FPF community holds meetings quarterly where you can meet fraud specialists and your peers. However, it is also there every business day to discuss issues and problems via the members’ helpline.

Laurie Beagle is divisional director at P &A Receivable Services