Take Steps to Tackle Internal Fraud
April 22, 2015
Most organisations accept the risk of external fraud as an unavoidable part of doing business—and take appropriate steps to limit that risk. But recent figures from CIFAS, the United Kingdom’s fraud prevention service, show that business owners would be wise to grant the same seriousness to internal fraud as well.
CIFAS’ standard definition of internal fraud is ‘when a member of staff dishonestly makes false representation, or wrongfully fails to disclose information, or abuses a position of trust for personal gain, or causes loss to others’.
An April 2014 CIFAS report found that there were 638 cases of reported internal fraud in 2013, an increase of 18 per cent from 2012. Internal fraud is on the rise, and it is a force to be reckoned with.
The harmful effects of internal fraud linger long after the initial act—the cost of each internal fraud incident can be four times the sum initially lost, according to CIFAS. To tackle internal fraud in your business, follow these five top tips:
1. Start a fraud hotline. Employees are more likely to report fraud if they can remain anonymous. Start a hotline your employees can call anonymously.
2. Watch for red-flag behaviour. Living beyond one’s means, having financial difficulties and maintaining an unusually close association with vendors or customers are all warning signs.
3. Do not rely solely on external audits. External audits, together with rigid internal controls, are what stop fraud.
4. Stay alert, especially if you are a small business. Small businesses tend to suffer more as a result of internal fraud.
5. Focus on prevention. Losses from fraud can linger for years. Instead of trying to recoup losses, try to prevent them in the first place.
DID YOU KNOW?
The average initial loss from internal fraud in 2013 was £424,500, according to a November 2013 University of Portsmouth study. The study also found that businesses continued to lose as much as £58,969 after the initial act, for a total sum loss of £483,000.