Fraud is a big issue for many businesses. Here is a Q&A about what systems need to be put in place to prevent this serious crime.

I have an employee who has been paying cheques to herself rather than the printing service we use. I got a call the other day from the printing company saying that they hadn’t been paid for six months. I found out that my employee’s husband has a gambling problem and I owe the printer more than $300,000. She’s gone now, but do a lot of businesses get ripped off?
According to the Australian Institute of Criminology, fraud is costing businesses over $3.5 billion a year. So while it’s a small comfort, no small business that has been ripped off by an employee or another party is alone. Many businesses don’t have good systems in place to stop fraud and when they confront it, they handle it so badly that it might mean that the culprit will get off.

Clearly, when it comes to fraud and protection from it, businesses must be proactive.

Fraud expert Sandra Lawrence says there is a worker morale issue. Staff turnover rises and not only bad staff but the good ones also leave. The former is forced, the latter is voluntary. The best thing that you can do is to inform the police. That might be hard for you and some businesses simply wear the loss but remember that her husband’s gambling problem isn’t going to go away and she could go on to do more damage to someone else’s business. And she’s already done enough to yours.

How do I stop fraud from happening to my business?
As a matter of better business policy, managers should assess just how vulnerable they are to the risk of fraud.

High-risk areas should be identified. And fraud prevention policies should be in place.

Fraud can send a business broke, but mostly it simply eats profits.

HLB Mann Judd’s appropriately named fraud expert, Darryl Swindells, advises that the first rule to reduce the chances of being robbed by employees, or anyone else, is to have the right systems in place. In addition, he believes creating the right workplace ethos can be really cost-effective.

Why does fraud seem to be so prevalent then?
Some experts believe that the age of the Internet has made fraud and its detection an even bigger issue nowadays. You see, once we always had a paper trail to at least try to track down some suspicious developments. The impact of e-commerce has meant that much of this paper trail disappears and even orders and payment details are now only recorded electronically.
What the experts point out is that there are internal and external threats for us to be mindful of in the brave, new e-world.

The classic example that such a threat exists is the external (non-employee) and internal (employee) systematic misuse of a company’s credit card.

This can be compounded if the goods bought by the criminal are shipped to a far off place where recovery is difficult – say Kabul!

Internal control requirements make a lot of sense and could save you a lot of dollars.

And in case you are still dismissive about the potential of becoming a victim of business fraud, consider this. The identity-fraud, such as credit card misuse, is up around $4 billion a year. The observations of UK writer, the Earl of Arran in the New York Times seems timely: “It’s not the people in prison who worry me. It’s the people who aren’t.”

By Peter Switzer, published on 7/04/2009

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