Every week, trusted employees defraud their employers, causing losses in the thousands. Emotions are high and many business owners wonder how this could have gone unnoticed. A Director in our Forensic team, Ian Tuke, explains how to understand, prevent and detect fraud from happening to your business.
First let’s cover off the grim stuff: Our Financial Crime Team works with business owners week in and week out to respond to the discovery that trusted colleagues, who have been in the organisation for years, have done the unthinkable and defrauded their employer - the business and people that have supported them through thick and thin.
The loss is always in the hundreds of thousands of dollars – ripped straight from the bottom line. Just Google “employee” and “fraud” and “New Zealand”.
Emotions experienced by the owners and colleagues are very predictable, regularly cycling through phases of disbelief, sadness, embarrassment (that this could happen in plain sight), through to anger and a desire to have a large heavy book thrown in the former employees direction!
This is when the trusty 20/20 hindsight kicks in:
- There were warning signs exhibited by the employee through behaviours and workplace records and no one connected the 'now obvious' dots.
- The employee had figured out the various control weaknesses around processes they were uber-familiar with.
- The controls were often token in nature and not effective at dealing with someone thinking about going rogue in what was a high trust environment, plus the business had not properly ‘stress tested’ them.
- Very little was done to proactively detect fraud – with the offending going undetected for years.
Most common insider frauds organisations experience include:
- Employees creating bogus suppliers and then creating false invoices. These are approved by the fraudster and paid into a bank account they operate.
- Messing with online payment facilities in accounts payable and payroll to load extra payments.
- Theft of commercially sensitive information to benefit the competition.
So with the grim stuff out of the way, what about putting a nice cost effective fence at the top of that cliff?
Four questions to ask of your business
How well do you stop potential fraudsters from being hired?
For example: Credit checks, criminal history checks, more than one referee check and only calling the previous employers main number, not a mobile number.
How well do you understand your fraud weak-points and how strong are your controls?
For example: Thinking like a fraudster, brainstorming the fraud risks across payables, payroll, receivables and theft of IP & commercially sensitive information. Stress testing the design of controls. For exporters and importers: are anti-bribery and corruption measures in place?
How well do you check your data for signs of fraud?
For example: Checking bank payments for unknown relationships; same payee reference but different account number; is there a common account number but different payees; is there information like a common contact for an employee and a supplier.
How well do you and your people know what the warning signs look like?
For example: Do you have knowledge of current fraud trends in businesses like yours, what do the typical red flag warning signs look like in your business, do you know what options are available if something doesn’t look right?
If you'd like to learn more, contact Ian to make make sure your business is 'fraud proof'.
Your total Risk Health Check
Now that you know how to protect your most important assets, it's time to cover off on the whole package by looking at how well your business does with health and safety and cyber. Our experts are on hand to help you navigate this space!