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How to handle fraud to prevent financial loss in your business

4th October 2013 Print

In the UK, businesses lose £5 billion to fraud every year. You might be surprised to hear that fraud is more likely to be perpetrated by employees, rather than third party groups. During a financial downturn, it’s crucial that you protect your assets. Ask yourself: is my business vulnerable to fraud?


Largely, companies are likely to see two types of fraud from their staff – either criminal financial reports or misappropriation of assets. Fraud can take place at any level, so make sure that you have precautionary systems in place, right the way from interns to management.

Common Fraudulent Practices

Employees may take money from petty cash and substitute it with a cheque. The cheque remains in the box, but obviously doesn’t get placed in the company’s bank account. Make sure that reconciliations are made swiftly and correctly. Check company statements personally and instruct the bank to send copies of the important documents to your home address.

Members of staff that are responsible for drawing in money are subject to daily temptation. Lapping is a typical fraudulent practice that redirects customer payments into personal bank accounts. After the second customer makes their payment, this is then credited to the first person’s account…and so on. Finding the overlap can be really tricky and this practice can go unnoticed for a very long time.

Employees may even create fictitious credit notes or fiddle with the numbers, so they can pocket the difference. Check for documentation to support transactions and compare credit notes to previous files.

Fraud Continued…

Theft is also a big problem for companies. Pilfered stock for personal use or resale can mount up to huge financial losses. It’s best to install CCTV cameras throughout the buildings, to prevent this. Storage areas should always be well-lit and you may even want to consider hiring a security company to police your stock. It’s also a good idea to minimise the amount of entrance ways to the building, so there’s no easy way out with your stock.

Those in charge of processing payroll and payments have so many opportunities for fraudulent behaviour. They could fabricate a non-existent supplier or address fake invoices. Check invoices for any tell-tale signs of doctoring or transactions that are out of the ordinary and unexplained.

Internal controls are the best way to police fraudulent behaviour such as money laundering. There should be an anonymous whistleblowing service for other employees that suspect criminal activity. Also, you should do your best not to put all your eggs in one basket – instead of assigning all important tasks to one individual, spread the responsibility around. This means you’re less likely to experience a disastrous instance of fraud. If it’s possible, rotate financial tasks between employees.

For payments above a certain amount, demand authorisation first. Compare your outgoings to your projected expenditure. If the sum seems a little odd, do some digging around.