Think you're invincible when it comes to fraud? Chances are, you're not!

Last week saw an employee fraud worth over £545k hit the media. Somewhat surprisingly, it was carried out by a former director of KPMG, one of the leading accountancy firms that advises major corporations on governance and financial control. If such a business can become the victim of employee fraud, can SMEs afford to be complacent?

Whilst it is impossible to create a fraud proof system, there are some basic steps that can be taken by SMEs to protect their business.

Prevention is better than cure

Nearly all fraudsters have little or no expectation that they will be caught. They’ll also rationalise their theft on the basis that “everyone else is doing it”. I have no doubt that KPMG knew they would be embarrassed by calling in the Police but at the same time they were sending a very strong message to their employees – “We will not tolerate this from anyone. If you are caught you will be prosecuted”.

Some basic controls

The KPMG director did not require senior authorisation for expenses under £5,000. This highlights the need for authorisation and approval controls / document requirements in all areas where a business might be exposed e.g. expenses, timesheets, purchases, credit notes, cheque requisition and signing. Many businesses do not even have in place cheque signing mandates with their bank e.g. at the most simplistic level, dual signatories for any cheque over a certain amount.

Here are a few steps that every business should ensure they have in place:
· Have a fraud policy and ensure that it is clearly set out in the staff handbook;
· Make it clear to existing staff and joiners that fraud will not be tolerated and must be reported if suspected – establish and encourage an antifraud culture;
· Set up a fraud hotline or means of reporting fraud and ensure this is known not only to employees but also customers and suppliers (perhaps show reporting details on stationery) – Most fraud is discovered via whistleblowers.

The devil is in the detail

The typical owner manager/entrepreneur is busy running their business and often detail is not their strong point. However, they must monitor what is happening to the cash in their business. One simple solution is for a second set of bank statements or correspondence to be sent to the owner-manager’s home. A quick review will often suffice to reveal overall levels of cash and any unusual transactions which can then be followed up.

Paul Smethurst
Forensic Accountant
Partner, Carter Backer Winter LLP
MGI Member Firm - London City
www.mgi-uk.com