Fraud should be seen as a business opportunity‘It’s not going to happen to us’

From time to time a major fraud scandal hits the headlines, the latest one being Toshiba.

Frauds in smaller businesses are less likely to receive public attention but they still happen. Common characteristics are a high degree of trust in staff and more informality than in a large company.  When trust is misplaced that there can be a fair opportunity for fraud to occur.  Despite this, smaller businesses often put the fraud prevention low down on their list of priorities. Some bosses take the view that ‘it isn’t going to happen to us’ – at least until they learn from bitter experience.

I recall an investigation (into a cash shortfall) – the only possible explanation was there had been a fraud and it could have only been by one long standing member of staff.  Despite the clear facts, the person was so highly trusted that the MD really struggled to come to terms with the situation!  The impact of fraud can be emotional as well as financial.

If fraud isn’t on your radar, what might be more ‘real’?

While I’d like to persuade readers that fraud should be taken seriously, perhaps one or two of these observations strike more of a chord?

  • As a business grows/changes there can be ‘mission creep’: the roles of staff can evolve, with people sometimes doing things outside their core skills.
  • People gravitate towards doing what they do best and (perhaps) not fully engaging with the other stuff.
  • Bosses in SMEs are sometimes heavily involved in the day to day business (at a transaction level). This can mean they don’t have enough time to stand back and work ON the business.
  • Business practices and controls often lag behind the growth of a business.

Common impacts are:

  • Accounting information that is more geared towards keeping the tax man happy rather than giving true insights into the business.
  • Losses through inefficiency/poor practices/missed opportunities.
  • Cash management weaknesses.
  • Difficulty in planning ahead.
  • Unnecessary fire-fighting.

Many of the solutions to these problems should also help reduce the chances of fraud!

Fraud prevention as an opportunity

Fraud is just one form of financial loss which grabs the headlines. Even if you regard it as being low risk, it can still provide an opportunity to start a conversation and to think more broadly about financial risks. The upshot is likely to result in better business insights, improved control and ultimately a more profitable and resilient business including (by the way) a reduced risk of fraud!

If you’d like to have a conversation about your business’s financial risks then do get in touch.