Like any virus or infection, the right conditions have to exist for it to spread. Flood, Cyclones and post GFC – the perfect breeding ground for fraud!
The spate of recent natural disasters, together with the impact of the GFC still lingering has created a very fertile breeding ground for fraud. Fraudsters are opportunists by nature and the current climate has created a plethora of opportunities.
There are 3 essential elements that must exist for a fraud to be committed as represented by theFraud Triangle:
Financial Pressure:
- Maintaining a pre GFC lifestyle,
- Redundancy,
- Gambling,
- Mounting personal debts.
Opportunity:
- Reduction in areas of internal controls,
- Change in or additional work responsibilities,
- Increased pressure to meet financial targets.
Rationalisation:
- Just a loan, will pay it back,
- I’m underpaid, I deserve it.
- Win it back with gambling,
- Unable to provide for family/survive without it.
An interesting statistic:
- 5% of people will never commit fraud,
- 10% of people will always commit fraud, they will proactively seek out opportunities,
- 85% of people will commit fraud if the circumstances exist, i.e. the elements of the fraud triangle prevail.
The alarming statistic is that the vast majority, i.e. 85% would commit a fraud if the “right” circumstances existed.
Therefore, in the current economic climate, based on the above statistics, I would consider that 85% of us are now at a higher risk of committing a fraud.
Therefore, in the current economic climate, based on the above statistics, I would consider that 85% of us are now at a higher risk of committing a fraud.
WHERE’S THE RISK?
Small to medium business will be the main target of fraud, why?
Small to medium business will be the main target of fraud, why?
- Less internal controls and review procedures in place,
- Higher reliance (level of trust) on fewer staff to cover multiple duties,
- Cash flow pressures arising from recent disasters,
AREAS TO FOCUS ON TO MINIMISE THE RISKS:
- Segregation of duties, - ensure the same person who accounts for the accounts payable does not authorise and process payment of the account,
- Specified procedures in place to account for and authorise payments of expenses, - make sure a proper paper trail exists and payments are not made without the appropriate or original paperwork being provided,
- Restrict control over the banking functions of the business, - ensure the owner or a trusted, separate person authorises and processes payments,
- Ensure the bank accounts are reconciled on a regular basis,
- Organisations that employee multiple casuals, e.g., the hospitality industry - ensure you can account for all the employees,
- Review management accounts – identify discrepancies and investigate in a timely manner,
- Identify the opportunities within your organisation - Undertake a “walk-through” of your business” – Ask yourself, if I wanted to commit a fraud, how would you do it?
- Identify key red flags of fraud:
- Key employees not taking annual leave,
- Employees appearing to be living beyond their obvious financial means,
- Unusual entries in the financial accounts.
Conclusion:
Remember, where there is smoke, there is generally fire, therefore if you suspect that a fraud has been or is being committed within your organisation:
Remember, where there is smoke, there is generally fire, therefore if you suspect that a fraud has been or is being committed within your organisation:
- Report it to a relevant senior person within the organisation, and
- Seek external professional assistance from a Certified Fraud Examiner (“CFE”).In this regard, I would recommend that you go to:http://nf.acfe.com/eweb/DynamicPage.aspx?Site=ACFE&WebCode=CFEDirectory to find a CFE to assist you.
Please note:
I would not recommend attempting to uncover and/or investigate a suspected fraud yourself as I have been involved in a number of cases over the years where this has occurred and what I generally find is that the suspect has been tipped off, evidence has been altered and/or destroyed and conviction of the suspect becomes difficult.
Often the person leaves/is terminated without being referred to the relevant authorities and simply moves unto the next victim organisation to commence perpetrating a new fraud.
Steven D Ponsonby is a Chartered Accountant CA, a Certified Fraud Examiner CFE and Insolvency Practitioner IP and is the founding Director of Forensic Accounting QLD, a specialist Forensic Accounting practice based in Queensland.
I would not recommend attempting to uncover and/or investigate a suspected fraud yourself as I have been involved in a number of cases over the years where this has occurred and what I generally find is that the suspect has been tipped off, evidence has been altered and/or destroyed and conviction of the suspect becomes difficult.
Often the person leaves/is terminated without being referred to the relevant authorities and simply moves unto the next victim organisation to commence perpetrating a new fraud.
Steven D Ponsonby is a Chartered Accountant CA, a Certified Fraud Examiner CFE and Insolvency Practitioner IP and is the founding Director of Forensic Accounting QLD, a specialist Forensic Accounting practice based in Queensland.
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