The business losses, wastage and fraud problem
Could your business survive losing $1,000, $10,000, $100,000 or even $1,000,000 to losses, wastage and fraud? Leakage and loss of business assets and resources are significant business risks. They can cripple the ability for businesses to grow and can result in business failure. Pursuing recoveries takes significant amounts of time, effort and additional costs both for the business and the people involved.
The most significant contributing factors to losses are lack of internal controls and lack of management review. Furthermore, override of existing internal controls can lead to these business losses, suggesting that internal controls may not have been strong or robust enough in the first place.
How good are your business’s internal controls? Are they really as good as you think they are? Has your business recently reviewed the design of these internal controls? Are these controls still appropriate in today’s operating environment?
The most effective way to prevent fraud is to have robust and appropriate internal controls in place. The best place to start is to identify and understand what the fraud risks in your business are and these will vary by industry. Once the risks are identified, appropriate internal controls can then be designed and put in place to either prevent fraud from occurring entirely, or detecting fraud before it escalates.
A number of recent fraud cases have occurred through lack of internal controls over supplier payments. Fictitious suppliers or supplier invoices were generated and loaded into the accounting or internet banking system, with the supplier bank account redirected to an employee bank account. There were no controls to prevent unauthorised suppliers or supplier information from being entered or changed. This type of fraud can be prevented by enforcing controls to have a second approver for changes to supplier details in the accounting and internet banking systems. Additionally, regular reviews of changes to supplier details should be carried out and cross referenced to authorised changes in master files.
Please contact your local Findex adviser for more information.