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Business fraud: How to protect against criminal behaviour

by John Saunders
7th Feb 20 10:17 am

Business fraud remains a significant threat to small to medium sized companies, however most will not implement sufficient controls and procedures.

The specialist London insurance broker ‘get indemnity’ takes a look at eight simple and cost-effective measures that can prevent and mitigate the impact of business fraud.

Understandably, most small to medium sized business will tend to focus on growth and innovation, rather than due diligence and risk management. However, the latest research by Crowe’s estimates the total cost of business fraud in the UK at £110 billion.

Implementing policies and procedures can often seem redundant and time consuming, however the cost of not doing so can have severe financial consequences. Below we take at the controls available to protect against business fraud.

  1. Segregation of duties

Ensure employee duties are segregated, so no one can control any transaction from start to finish. Ideally, no one person should be able to initiate, authorise and reconcile a transaction. Even if you only require one person to handle your bookkeeping function, you should ensure at least two persons handle these functions interchangeably. Setting up these procedures makes it less likely for cases of business fraud to go unnoticed.

  1. Dual authorisation

Ensure you maintain a dual authorisation procedure for transferring funds. No one person should be able to make a payment electronically without authorisation. Many banks can now offer this service online without any additional work on your behalf. By clearly identifying who is authorised to conduct transactions on behalf of the business, including payments up to a certain amount, will reduce the risk of business fraud.

  1. A call back procedure

A procedure should be implemented that requires a call back to a previously established contact number for any transfer request to a new bank account or to amend the details of an existing bank account. Rather than any contact information included with the payment request. This will mitigate the risk of social engineering fraud that seeks to impersonate either a senior manager or established supplier.

  1. Background checks

While every business aims to hire honest employees, having a formal process to perform checks can help prevent business fraud. Ensure that when recruit for positions of trust involving money or stock, you undertake sufficient background checks. As the employee’s level of interaction with finances increases, so should your scrutiny of their past and present situation.

  1. Monitor behaviour

Certain behaviours may identify that an employee is committing fraud. Working outside of business hours or rarely taking time off, can indicate they are seeking opportunities with less colleagues around. In addition, employees under sudden financial challenges in their personal lives maybe increasingly motivated. Requiring employees to take their annual leave for uninterrupted periods can assist in exposing business fraud.

  1. Employee training

Ensure that every employee is trained in and understands the workplace procedures. If possible, make adherence to the procedures part of the conditions of employment. Employees in high risk areas of the business should be educated how to identify criminal behaviour and to report suspicious behaviour by colleagues and customers. A whistleblower policy should outline the steps employees should take and they should be assured that there will be no negative consequences for reporting business fraud.

  1. Create the right culture

Senior management should lead by example by adhering to the policies and procedures while being held accountable for their actions. Ensure employees are aware that business fraud will be prosecuted and there will be no exceptions. Increasing the perception of detection can be an effective fraud prevention strategy. Whereas an ethics policy can set the tone and detail actions that constitute fraud and how those actions will be punished.

  1. Undertake audits

Regular and independent checks of different functions within the business can assist with identify and preventing fraud. Businesses should routinely audit functions that work in cash, refunds, inventory management, product returns and accounting functions. Employees are encouraged to follow policies and procedures if they are aware that checks and balances will be undertaken. Additionally, surprise audits can assist detect business fraud in functions that are more prone to criminal behaviour.

In addition to a robust set of policies and procedures embedded within the culture to protect against business fraud. Crime insurance arranged by a specialist insurance broker can provide a cost-effective means to protect against the financial consequences of fraud in the workplace. With forensic accountants and investigators available to establish suspected business fraud, crime insurance can offer valuable support and protection.

Working with a specialist insurance broker will allow you to identify multiple options from the market and tailor your crime insurance to meet your individual needs. Business fraud cover can include protection against employee theft, cybercrime, phishing attacks, social engineering fraud and extortion from ransomware.

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