Tackling Business Fraud
ROSIE MURPHY
It is my intense love for crime fiction and detective dramas that first made me interested in fighting crime, and it turns out that my skills in accountancy are actually very useful in detecting and preventing fraud. After realising that this may be a good way to spice up my accountancy career (Who can blame me? I signed up for qualification in forensic accountancy, the equivalent of a master’s degree, which I completed last month.
Although I learnt exciting things, like interviewing techniques and the legalities around searching for evidence in a suspect’s trash, I spent a huge amount of time being taught how we can protect ourselves from becoming victims of fraud, and it opened my eyes to the huge extent of the problem faced by businesses in the UK.
In fact, a study carried out by Portsmouth University, Crowe UK and Peters & Peters solicitors estimated that fraud losses in the UK could be as high as £219 billion annually. A staggering proportion of those losses (£157.7bn) is from private sector businesses as opposed to individuals and public sector bodies.
When I started mentioning this to people, I was constantly presented with anecdotal evidence backing up the extent of this problem. The sad thing is that businesses are not always able to recover from these losses. Things like: “Our bookkeeper stole £15k from a business I worked at.” or “One of my volunteers would regularly pinch £10 or £20 from petty cash.”
I have questioned clients about a transaction, to be told “Oh, that £5,000 was taken out of my bank account because I was a victim of fraud. They said they were from the bank, and I needed to transfer my money to keep it safe.”
Interestingly, we are advised to regularly change our passwords and be safe online, and this is good advice seeing that 72% of businesses had experienced cybercrime between January 2021 and January 2023.
However, internal staff-related fraud accounts for over a third of small business fraud, which begs the question of why employees are stealing from their employers, and what we can do to prevent this happening. It’s also interesting that these incidents are under-reported, with businesses deciding to deal with it themselves rather than go to the police. Are we too soft on these sorts of criminals, perhaps?
There are three factors that must be present for a fraud to occur, and this is a good starting point in the bid to learn how we can protect ourselves. These factors are, ‘Opportunity’ to commit fraud; ‘Pressure’ applied to the individual committing the fraud; and the ‘Justification’ of the fraudster for committing the fraud. These factors are collectively known as ‘The fraud triangle.’
Consider a virtual assistant who is such a time-saving asset that she is given more and more responsibility and gets on well with the business owner who has never questioned the VA’s trustworthiness.
One day the VA discovers that her husband has run up gambling debts and their home is at risk of being repossessed. This one change can shift the ‘pressure’ and ‘justification’ side of the fraud triangle. The VA, under financial pressure, can rationalise committing fraud because, ‘the business is thriving; it won’t even be missed.’ In this case, if the opportunity is there due to lack of controls, the business is almost certain to suffer a loss.
Fraud is a serious problem in the UK, accounting for 40% of all crime, and business owners need to proactively protect themselves from this risk. The first step in doing this is to educate yourself further about the risk areas and common weaknesses in business systems.
Rosie Murphy is the director of RDM Accountancy Services. The company can offer one-to-one support and group sessions to assist in reducing the ‘opportunity’ for people to steal from your business by helping with risk assessments and implementing procedures to combat the risk. For more information visit rdmaccountancy.co.uk. You can also visit her YouTube channel for more tips on business accounting.
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