Fraud in business

Fraud can seriously affect the solvency of a business.  If it goes undetected it will not only impact upon the business’s bottom line but also contribute to a negative culture amongst staff and possibly affect business credibility in the marketplace.


The greatest fraud risk to a business is the thought that fraud is not a threat at all.  A good business constantly reviews its policies, practices, and systems against internal and external threats.      


It is vital that businesses are aware of what constitutes fraud either as an internal or external threat regardless of whether or not the business thinks it really is at risk.   


Internal threats more often than not involve staff taking advantage of poor or inadequate practices and systems especially in areas such as:

  • Bookkeeping
  • Accounts payable 
  • Salaries wages and Overtime
  • Materials Tools and equipment


External threats primarily involve:

  • Misuse of cheques
    • Misrepresentations about goods or services received
      • Fraudulent use of credit cards


Fraud does not always involve the notion of monetary gain; however, it can be defined as encompassing a wide variety of corrupt, deceptive, dishonest, or unethical behaviours.


The following definitions are provided as examples of the average persons understanding of fraud:

  • Deceit, trickery, sharp practice or breach of confidence, by which it is sought to gain some unfair or dishonest advantage
    • An intentional misstatement of information to obtain financial benefits through improper, unauthorised, or illegal actions
      • Using false representations to obtain unjust advantage
        • Obtaining money or property by deceit


Consequences of Fraud:


It is also important that businesses understand the consequences associated with fraud.  The following consequences should be noted as examples that occur when fraud prevention or control plans are not implemented or actively monitored.

    • Loss of revenue
      • Increased operating expenses
        • Reduced operational efficiency
          • Inability to meet obligations to employees, suppliers or contractors
            • Damage to credibility
              • Confidentiality compromised
                • Public criticism
                  • Strategies and plans jeopardised
                    • Complaints from clients, customers and contractors
                      • Increased expenditure on salaries, wages and allowances
                        • Employees encouraged to seek additional loopholes in the award


Assessment of Fraud;


Every business is at risk of fraud to some degree.  In an effort to determine whether you feel your business is appropriately protected against fraud ask yourself the following questions:

  • Do you know what fraud is and what types there are?
  • What areas in your business are at the greatest risk of fraud?
  • What can you afford to lose the most of?
  • What can you afford to lose the least of?
  • What is an acceptable loss to your business?
  • How likely do you think fraud will occur in your business?
  • Does your business have a fraud prevention strategy?
  • Do you know how to prevent fraud?
  • Are you a proactive or reactive about fraud?
  • What do you do if you identify large scale fraud impacting upon your business?
  • How do you deal with customers or staff that are involved in some fraudulent behaviour?




Business managers should consider some of the following fraud signals that may indicate that fraud is or likely to occur within their operation: 


  • Presence of illogical excuses and reasons for unusual events or actions.
    • Senior staff becoming involved in “junior” work, such as purchasing, ordering and receiving.
      • Excessive staff turnover rate.
        • Staff not taking regular leave.
          • Potential or actual conflicts of interest have not been declared by staff.
            • Excessive number of duties residing with one person.
              • The presence of undue secrecy within the organization, or excluding people from available information.
                • Evidence of staff that treat controls and standard practices as challenges to be overcome or defied.
                  • Absence of employee background checks prior to employment.
                    • Identification of staff making unauthorised changes to systems or work practices.
                      • Missing documentation relating to client or business financial transactions.
                        • Poor payment approval procedures involving failure to provide adequate supporting documentation.
                          • Instances identified where key documents such as day books, log books and timesheets have been altered, misplaced or lost.
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