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Five tips for combating fraud in the recession

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31st Mar 2009
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Will Kenyon of PriceWaterhouse Coopers’ forensic accounting practice outlines how firms can protect themselves against financial crime.

Around half of UK companies have suffered financial crime, according to PricewaterhouseCoopers Global Economic Crime Survey 2007, and the average total cost to victim firms is in excess of £2 million. In the current economic climate, the pressure on people to commit fraud at work is growing. Sales targets seem evermore out of reach, bonuses are under threat and people’s reputations and livelihoods are at stake. Together these can be powerful motives for individuals to cross the line.

Fraud takes many forms and is a prevalent threat in the best of times, but during a downturn the risk of fraud is increased due to the following factors:

  • The temptation to take shortcuts to meet targets increases as sales fall away and the bottom line comes under pressure.
  • Employees feel less secure, both financially and about their jobs. A combination of greater financial need and reduced loyalty may cause them to perpetrate fraud.
  • The desire to achieve better returns in times of low interest rates and volatile share prices can lead to greater risk taking and decisions that will come back to haunt you.

In order to effectively deal with fraud, there are five key actions that firms should take, which I will outline below.

1. Set the tone from the top
They say that the fish rots from the head. If senior management are not sending clear messages and leading by example, then the company’s in trouble. Make your anti-fraud stance clear to employees and business partners alike. Zero tolerance is the preferred option here. Follow this through with regular communications, effective whistle blowing mechanisms, and learning from past problems.

2. Assess the risk
Too many organisations miss this step. How can you tackle a disease you haven’t diagnosed? Look at the business from top to bottom and work out what sort of fraud risks you might be vulnerable to. Think laterally – fraud is more than just money or other assets being stolen; it covers publishing misleading information, cooking the books, paying or receiving bribes, and many other forms. Remember that your company can be a perpetrator as well as a victim of fraud. Either way, senior management are likely to be in the firing line.

3.Institute rigorous compliance and controls
Building on the risk assessment, consider what procedures and controls you have in place to mitigate the risks you have identified. Are they fit for purpose? Are they actually working? Move swiftly to rectify any gaps. Even when money is tight, it does not pay to economise on controls.

4. Trust but verify
Monitor the operation of controls, focusing on those that are most critical to fraud risk. Don’t treat your people like potential criminals, but let them know that you’re watching.

5. Take decisive action when fraud occurs
If the unthinkable happens, effective investigation and follow-up (including remediation) are vital. Fraud is bad enough, but an inadequate response will compound the problem and can cause more damage than the original offence. Remember that appropriate action now will send a deterrent message for the future as well.

Want to know more? Read the full version of this story on AccountingWEB.co.uk's sister site Finance Week.
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