As businesses and their owners enjoy these three short weeks, there are darker parts of the business that will not take a mini-break, namely fraud.

Fraud does not sleep. While we look after our own personal physical health and well-being, the same should be said for our business’s health too. Our employees’ livelihoods, our future incomes, our retirement nest eggs all depend on it; a healthy business that is free from fraud and other unscrupulous manipulations.

If you think fraud doesn’t happen to you, it just happens to someone else, please think again. Use the charts below to guide you. What is fraud? What are the motivations for such fraud? What are the red flags or tip of the iceberg indicators of fraud? Have you observed changes in behaviours and attitudes of certain people in your business?

1. Financial Statement Fraud

Examples:

• Bring forward fictitious revenue.

• Conceal liabilities/expenditure.

• Improper disclosures.

• Improper asset valuation.

• Timing differences.

• Capitalise expenditure.

Motivation:

• Performance bonus

• Market expectation

• Meet board budget expectations

• Continuation of employment

• Conceal fraudulent conduct

2. Asset Misappropriation

Examples:

• Bring forward fictitious revenue

• Conceal liabilities/expenditure

• Improper disclosures

• Improper asset valuation

• Timing differences

• Capitalise expenditure

Motivation:

• Greed/lifestyle

• Gambling

• Financial hardship

• Revenge

• Substance addiction

3. Corruption

Examples:

• Bring forward fictitious revenue

• Conceal liabilities/expenditure

• Improper disclosures

• Improper asset valuation

• Timing differences

• Capitalise expenditure

Motivation:

• Greed/lifestyle

• Gambling

• Financial hardship

• Revenge

• Substance addiction

When to look for fraud — red flags:

• Change in behaviour/attitude.

• Affording a lifestyle beyond someone’s means.

• Ego.

• Personal problems.

• Drugs/gambling/debt.

• Grievances.

• Lack of segregation of duties.

• Unusual access/authority.

• Overriding controls.

• Failure to accept responsibility.

• History of illegal acts.

• Close working relationships.

• Persistent anomalies in work practices.

• Sudden resignation or failure to attend work for no reason.

How secure and safe is your business from fraud and unscrupulous manipulations?

To answer the above questions and obtain the necessary comfort and assurance, we recommend that your business undertakes a fraud health check. A fraud health check involves:

• Considering the effectiveness of key controls in areas susceptible to fraud, including cash payments, collection and balances.

• Evaluating the level of reconciliations performed.

• Checking the timeliness of management reporting and supporting documentation.

• Assessing the levels of independent reviews, segregation of duties, reporting systems used and frequency of annual leave usage.

• Identifying any improvement opportunities for your business.

Please contact your adviser if you would like more information or assistance regarding undertaking a fraud health check.