35% of business owners fell victim to fraud
According to independent research1 undertaken in 2016, small and medium sized business owners of the millennial age, i.e. 18-35, are significantly at risk of fraud. A staggering 35% of young business owners fell victim to fraud of one type or another2 and, worryingly, in 90% of cases, the fraudsters were successful in conning them out of money. Fraud cost small businesses £1.3bn in 2015 according to a report by Slater & Gordon, the law specialists, with unreported fraud amounting to an astounding £260m per year.
One of the key aspects of fraud is that of deception; estimates state that the majority of cases actually go undetected. Of those who were found to have been duped, and there are some very sophisticated ways to commit fraud today, 55% were under 25. Let me put this into perspective, only 2% of business owners aged 45 and over were affected. So, what does this tell you?
When you first start your business, a lot of your transactions and dealings are based on trust. Trust forms a huge part of the business, and you do not want the people you have around you to feel that you doubt their ability or their integrity in any way. This is a big mistake.
Processes help protect you
From the very beginning, you need to act BIG. You need to have the processes in place that will protect your business no matter how large it grows. This doesn’t mean that you can’t trust your people, it just means that they are not put in a compromising position if the worst should happen. This is where the over 45’s have it; with experience comes wisdom, and that leads to efficient internal processes.
Let’s not trivialise the effects of fraud. Of those hit by invoice or mandate fraud, 45% of businesses either folded or lost thousands of pounds. As a result, 30% had to cut back or scale down operations, however, only 35% recognised a need for tighter processes and procedures. Internal controls help to prevent fraud. This has to be your starting point.
18% of businesses didn’t report fraud
Businesses affected by fraud do not always report the fact, either. 18% in 2016 kept the fact that they’d fallen victim to themselves. Why would you not tell the police? Well, for 64% of them they feared damage to their reputation; they did not want to expose the fact that they had inadequate procedures in place, or the assumption that they would incur more cost pursuing the matter. The scary thing is that in a third of all cases, the perpetrator was actually an employee3.
Let me make another thing clear, if you fall victim to fraud, it is highly unlikely that you will recover any of the monies; it will probably even cost you more as you will still need to pay the legitimate suppliers (if invoice fraud). Yet studies showed that 53% of under 25s believed that liability lay with the bank (this fell to 15% for the over-25s).
Any fraud committed by an employee will not be recovered, generally, as you, the business owner, gave them “permission” to act on your behalf. This may sound harsh but the only way to get around it is, yes, you’ve guessed it, to have an adequate infrastructure in place so you can reduce the risk of it happening in the first place.
Do you know your regulatory duties?
The studies also showed that 54% of SMEs were unaware of their regulatory duties (of which there are many) and that 47% simply did not have the knowledge to prevent fraud. The first step has to be to have a fraud audit, or stress testing, done so that your current processes, systems, and procedures can be scrutinised by an independent third party to test how robust they are.
The Criminal Finances Bill (Oct 2016) is currently under review on whether the failure to prevent aspect should include economic crime such as money laundering, fraud, and false accounting. This could see bosses prosecuted for failing to stop their staff facilitating such acts. Business owners will, effectively, be responsible for the actions of their employees irrespective of complicity or knowledge.
Justice Minister Sir Oliver Heald QC said he wanted to restore the public’s faith in business and, “make sure we have the right tools available to crack down on corporate criminality”. In order to do this, he said, “companies must be held to account for the criminal activity that takes place within them.”
Scary stuff, right?
We are experienced when it comes to fraud
Accretion Accountancy are very experienced where fraud is concerned, and the internal controls that follow. A ‘vicarious’ liability offence, making companies guilty through the actions of their staff, without the need to prove complicity would really only be prevented by the company proving that such behaviour is not tolerated. This would entail clear instructions being given to all staff on what to watch out for, how to deal with potentially dangerous situations, and that dismissal and prosecution will be swift if anyone is found acting in this unacceptable way.
We can perform the fraud audit, or stress test, and produce a working document that you can incorporate into your employee handbook. Training can be given to both you and your staff to ensure that you minimise the risk of falling victim to fraud.
Arrange a free skype call
Why not arrange a free Skype call with us to see whether you could benefit from one of our Fraud Audits?
Image from IT Security Guru
- Slater and Gordon (2016); Accura (2016)
- 22% exaggerated expense claims
20% false invoicing
20% identity fraud
11% fictitious refunds
11% unauthorised withdrawals by an employee
16% other, less common reasons
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