Ever present danger

With the recession linked to more instances of fraud, having good checks in place has rarely been more important

Ever present danger

Regardless of the size or success of a business, there is always something lurking in the shadows that has the potential to damage it irrevocably. Whether from within or without, becoming a victim of a particularly nasty fraud can take an enterprise to the point of no return.

“Fraud can bring a business to its knees,” says Richard Mumford, partner at law firm Stevens & Bolton. “If you are an SME with quite fragile cashflow for example, you might be using all of your money to invest and grow the business, and have relatively small margins for error. Fraud can take away that cash or that margin and be the difference between a business succeeding or failing. Simply from a cash impact point of view, it can be devastating.”

Of course, the financial impact is merely one side of the coin when it comes to fraud. In many instances, the monetary loss will pale into insignificance compared to the harm caused to a venture’s reputation.

Mumford says this is particularly relevant for businesses in the financial sector, which rely on high levels of trust between themselves and their customers. “There is often a feeling that, although the business has only been a victim of fraud rather than in any other way involved in it, it somehow diminishes trust in that business in terms of its integrity and in terms of its ability to deliver on its contracts,” he explains. “There is a sort of stigma attached to it sometimes depending in particular on the markets and the particular fraud involved.”

It would be safe to assume then that the more clued-up entrepreneur would have a fairly solid system in place to counter any fraudulent activity. Nevertheless, in a time of economic austerity when instances of fraud are on the rise, it probably pays to revisit one’s anti-fraud policy. Indeed, this is further necessitated by the new types of fraud that have sprung up over the last few years.

“The biggest profile issue at the moment is the various types of cybercrime, so things like phishing and people cloning your website, for example,” explains Mumford. “The way you police it in a sense is by looking at your own website and if you do start to see complaints arising, think quite literally about how that might be happening. It might just have been somebody in your own company who didn’t log a sale properly or something went wrong with the IT system, but just be aware that these problems are out there.”

Naturally, there is a plethora of other frauds that a business can be exposed to but in general there is a similar set of steps to be followed in order to limit the possibility of an attack by an employee, customer, supplier or other third-party. However, the first and most important step, according to Mumford, is the introduction and maintenance of a firm anti-fraud culture at every level.

“It is important that employees understand the impact on the business of fraud, and the importance of making sure fraud does not occur within the business,” he says. And while accepting that the reporting of fraud isn’t something an employee would do lightly, Mumford explains that keeping confidentiality at the heart of an anti-fraud policy should ensure the process doesn’t generate a climate of fear among workers. “It is important to have a proper reporting line, even for a small business, so people who have concerns can voice them in a confidential way, not to their line manager but to someone in the business who is slightly detached from what they are doing.”

Equally, though, an employer should also ensure his or her own management style doesn’t lead their workers down the path of temptation. “You have to be careful to balance keeping staff happy and incentivised and not over-incentivising them to perform,” Mumford comments.

An anti-fraud stance essentially needs to reverberate with external parties too and, as with most third-party contact, an appropriate level of due diligence is advisable. “It is important that a business sends out the message to its clients and suppliers that it is an anti-fraud business,” says Mumford. He adds: “It just helps to sometimes have a second pair of eyes on things, especially if the company is going through winning important contracts.”

At the end of the day though, no policy is totally fool-proof and even the most conscientious business owner could have to deal with an instance, or allegation, of fraud. Needless to say, a pre-planned response strategy can go a long way to easing the pain and ensuring that the correct conclusion is reached and any financial and reputational loss is recovered or, at the very least, limited to an acceptable level.

“What you do – sometimes in the first couple of minutes, or even seconds – after somebody comes to you and says, ‘I think there’s been a fraud’ can massively impact the back-end of the process,” says Mumford. “You can’t make any assumptions about whether the fraud has actually occurred or not; you can’t make any assumptions about who is involved; and you can’t make any assumptions about how big it is. What you need to do is grab the evidence you have immediately.”

Fraud is clearly a very emotive issue then, and should therefore be approached with care in the workplace. “The stigma of an allegation of fraud being made against an individual is pretty serious stuff and once someone has been tainted by it, it is very hard to undo it,” comments Mumford. “So you just need to treat it with a degree of caution and a degree of tact and subtlety, frankly, until you are certain.” 

Adam Pescod
Adam Pescod

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