How To Minimise Fraud

Many millions of pounds, most of which is uninsured, is lost by companies through fraud. Fraud can occur at all levels within a company - from senior management to office juniors. Some departments in a company such as sales, purchasing and computer operations are likely to be more susceptible to it than others. Whilst not usually seen as a topic on management training courses, fraud detection and prevention is the responsibility of the management team. This article discuses this subject and provides some tips on fraud prevention.

As the place of the fraud changes so too does the type, ranging from fictitious overtime by employees to fiddling expenses and theft of company assets by senior management. Not even "the Big Boys" can resist the temptation to succumb to fraudulent behaviour.

The solution to the problem is quite clear, although it is often difficult to achieve. The old maxim which says, "Prevention is better than cure" is particularly applicable in this instance. A lax attitude by the management can lead to the occurrence of fraud. If staff see that there is little or no chance of being detected or even prosecuted, then they will be more inclined to deceive the company.

It is clearly the management's responsibility to ensure good practices are in action. This can be done via a company policy which categorically states what the company will or will not tolerate and what procedures will be initiated if fraud is detected. Internal management training should be conducted on a regular basis to ensure everyone in a supervisory position understands and can apply these policies.

Each company should have an internal control system which is the responsibility of the management and which covers all areas of operation within the company.

All new staff who are recruited to the company should be checked out thoroughly, prior to and at the interview; references and qualifications should be examined and relevant points discussed during the candidate's interview. Similarly, employees leaving the company should be checked. By ensuring that all company property (ID cards, door keys, security passes) has been retrieved and access to company information is restricted, you will be lowering the chances of fraud taking place.

In addition, internal control systems should be regularly updated. Some form of control over cash and other valuable assets should be introduced. Develop a hierarchy of authorisation for everything that is requested (materials, cash etc). Try to organise and segregate each person's duties. Strike a balance so that fraud becomes impossible. In doing so, however, do not let overheads rise - an interesting challenge for all members of the management team.

Company policy must be reviewed on a regular basis to ensure that it is still effective and applicable given changes which may or may not occur within the company.

A company survey of potential risks is usually made up of three parts:

A review of the present internal control system and assessment of its effectiveness.

Investigation of specific areas where problems or potential dangers are discovered.

Decisions on how best to minimise/ reduce these risks and what action to take when fraud is discovered.

Carrying out such a survey has been shown to considerably lower the risk of a company being subjected to fraud. No amount of management training will substitute for a healthy dose of commonsense when tackling potential fraud risk. Well thought out practices can minimise the risk of fraud happening but cannot eliminate it, so it is sensible to be well prepared legally.

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Richard Stone (richard.stone@spearhead-training.co.uk) is a Director for Spearhead Training Limited that specialises in running management training courses to improve business performance. Richard provides consultancy advice for numerous world leading companies. View more details at =>
http://www.spearhead-training.co.uk

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