Business fraud, already at record levels, is expected to increase further as companies and individuals come under growing pressure to make ends meet. Michael Mulligan, a corporate recovery partner at law firm Halliwells, explains how to protect your company against criminal activity.
Reported fraud cost UK businesses more than £705 million in the first six months of 2008, an increase of 74 per cent on the same period last year, according to BDO Stoy Hayward.
At the same time, the UK economy is threatening to fall into the abyss. The combined effects of the credit crunch, rising oil prices, fluctuating interest rates and inflationary pressure will inevitably result in a surge of insolvencies in the next 12 months.
As demonstrated in the last recession, insolvency and fraud go hand in hand. Staff may be motivated by a desire to remain employed or pay the bills, while company directors may commit fraud in order to keep the business afloat or make financial results look better.
This means that all companies need to be extra vigilant against fraud in the current climate. There are three main varieties to watch out for: external fraud by someone outside the company; internal fraud by management or employees; and collusion, a combined effort between someone inside the company and, say, a debtor or supplier.
The key aspects of fraud management are:
Prevention
Naturally, this is much better than cure. Establish an anti-fraud culture supported by the appropriate policies, controls and procedures to prevent your business becoming a victim.
Detection
Consider implementing staff training and awareness programmes, whistleblowers’ hotlines and spot audits. With business increasingly relying on IT, companies often tend to become very process driven, so creating an environment where staff are incentivised for asking the right questions rather than churning through as much work as possible will increase detection rates.
Investigation
Ensure your business has an up-to-date response plan. If your suspicions are aroused, act quickly before the trail goes cold – but don’t necessarily go in with all guns blazing. Seek expert advice in complex or delicate situations.
Insurance
Check the company’s policies are consistent with current business risks.
Finally, don’t despair: though fraud often leads to insolvency , insolvency can be the first step to recovering stolen funds.
Copyright 2010 Vitesse Media
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