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01 Sep 2016
We all receive scam emails offering us free goodies, multi millions we could get from Africa, IRD refunds or the inheritance from a distant relative in China. Just last week there were scam facebook posts purporting to enable you to get free Air NZ flights or family passes to Rainbows End. These scams are becoming more realistic and we have to have our wits about us and be vigilent at all times.
But what about closer to home and in our businesses and community organistions? As well as these numerous scam emails, there is the risk of fraud or misappropriation of assets or funds. At an audit conference I attended, we were taken through fraud hotspots and the charactistics of a fraudster, which I thought I would share with you.
The most common type of fraud for businesses would be:
All of these might be low value frauds, but added together they can amount to thousands of dollars even in a small organisation.
A KPMG survey carried out from March 2014 to August 2015 revealed that weak controls in businesses were a factor in 61% of fraud cases. These controls may be as simple as having two individuals approving invoices, only approving a payment with an original invoice attached, a regular review of holiday leave.
What possesses someone to commit a fraud? Firstly there needs to be motivation. An individual may have financial pressures, addictions or habits to fund, or simply greed. They need the capability, i.e. be familiar enough with the systems to know how to manipulate them. They need the opportunity, so require weak controls, poor systems, lower scrutiny and access to assets, information or systems. Finally they need to be able to rationalise their offending “the business can afford it”!
What does a fraudster look like? Firstly there is no such thing as an average fraudster, it could be anyone. However research has found that those who commit fraud within organisations, fall into two groups:
The trusted support person. Typically female aged 35 – 55, very intelligent, trusted, been with the business for a long while and likely to be the office manager, accounts or finance clerk.
The dominant excecutive. Typically male aged 40 – 55, strong personality, trusted and no previous convictions.
I am sure we all have people like this in our businesses and organisations. The vast majority of these types of people are obviously not fraudsters, but the small minority that do commit fraud are likely to be our trusted employees or colleagues.
There are some warning signs to look for. Vague or insufficient knowledge of suppliers may indicate false invoicing.
Not taking annual leave or working unnecessarily long hours. These could indicate that they don’t want anyone else doing their work and seeing what they are doing.
Lifestyle not matching their salary and significant changes in their attitude or behaviours, which could be due to the stress of offending.
Again none of the above would alone indicate that a fraud is occuring, but are just warning signs and something to at least consider.
Where to next? Put yourself in a fraudster’s shoes, try and identify the weak links in your systems. Keep track of your financials and other assets. Make sure you understand where the money goes.
Thankfully, fraud is not commonplace in our community. However, it makes sense to be able to spot some of the warning signs particularly when times are hard.
For more information on how we can help your business, get in touch