Fraud prevention services
Fraud can take a number of different guises. Threats include fraud as a result of organised crime, such as theft of goods or business identity, infringement of intellectual property, internal fraud by employees and fraud by rogue customers but this is by no means an exhaustive list.
Cross-border crime – in which fraudsters are outside the UK – is also on the rise, making fraud more difficult to prevent and detect. The increase in online trading has also led to new forms of criminal activity, such as fresh ways to launder money and methods to defraud companies through email communication.
Preventing and detecting fraud
Preventative internal controls
Well-governed companies should implement internal controls to prevent fraud and other irregular activity.
One of the most simple and effective safeguards against internal fraud is the segregation of duties. This means tasks are delegated among several people to ensure no single individual is in a position to authorise, record, and be in control of a financial transaction and the resulting asset.
Expenses approval is a commonly-used form of internal control and other preventative internal controls include limiting access to equipment, stock inventory, petty cash and other assets. There should also be procedures in place relating to email communications. For example, customers requesting changes to their bank account details should be verified, perhaps by cross-checking telephone numbers held on the database, to ensure that the email instruction is genuine and not from someone falsely claiming to be your client.
Bridgehouse can assist your business with the creation of appropriate internal procedures, expenses policies, schemes of delegations, authorisation limits, verification procedures, audit trails and more. We can also review of any current procedures in place to evaluate their effectiveness.
Detective Internal Controls
Detective internal controls are the backup procedures that ensure the preventative internal controls are operating as intended. This second set of controls should pick up items or events missed by the preventative measures or where the preventative controls have been circumvented.
For example, a business may grant high-level personnel the ability to override internal controls in the interests of operational efficiency. And, of course, internal controls can be circumvented through collusion between employees. Therefore, it is imperative that businesses also have detective controls in place. These might include the use of performance reviews, such as budgets, forecasts and other benchmarks, tracking of which should highlight any unexpected or unusual results which can then be followed up.
As regards financial management, reconciliations should regularly be conducted to compare data sets and corrective action taken to resolve any material differences.
Other detective internal controls include external audits from accounting firms and internal audits of assets such as inventory.
Bridgehouse can review current detective measures in place and suggest any improvements. We can also assist with the setting up of appropriate reporting and review procedures.
What to do when fraud is detected?
This is where an organisation’s anti-fraud policy comes into play. As well as including the preventative and detective internal controls in place, an effective policy should also include detailed procedures on how to investigate suspected fraud and actions to be taken once fraud is confirmed.
Such a policy may also be supported by associated policies, like a whistleblowing policy, and will also be linked to employment policies such as disciplinary and harassment policies in the case of internal fraud or collusion between employees.
Here at Bridgehouse, we are expert in corporate governance for fraud prevention. This includes drafting policies and procedures and producing bespoke anti-fraud and whistleblowing policies for your organisation.