Your business is at risk of fraud
Fraud Risk Areas in Business
Most businesses are susceptible to fraud. Just ask ABSA, Pioneer Foods or any of the other corporations that have fallen victim to fraud. SMEs are more susceptible to fraud because they are less likely to have in place internal controls to assist in preventing and detecting fraud.
It’s no surprise that employees are the biggest culprits and it’s a tough pill for employers to swallow.
The two areas of the business that are most susceptible to fraud in any business are cash and inventory .
We take a closer look at each below:
Cash fraud
Cash is by its nature easily susceptible to fraud by employees. Theft include the use of fake suppliers to transfer money to and “kiting“: a way of stealing payments from debtors and then moving the funds between accounts to cover up the fraud.
One of the best ways to combat cash fraud is through the monthly reconciliation process. If done correctly, and accounts are reviewed regularly, any suspicious activity can be identified and corrected before the problem becomes unmanageable.
Inventory fraud
Inventory refers to the physical items that a company holds for resale (stock in trade). Inventory fraud simply refers to the theft of these items; these are generally removed from the premises (either for personal use or resale). Inaccurate inventory balances (over or understating the inventory items can inflate or reduce company profits). Sudden changes in inventory trends can indicate inventory fraud, and phantom inventory whereby purchases are falsified (inventory simply does not exist).
Inventory must be checked and counted before accepting from suppliers. Similarly any deliveries must be checked and recorded before being despatched.
Stock counts must be done at least monthly by people not involved in the day-to-day inventory management process, and inventory susceptible to theft must be counted at least weekly.
Any discrepancies must be investigated and corrective action taken.
Businesses, especially SMEs, should work to improve their internal control environments. This will go a long way in reducing the likelihood of fraud .
Keep in mind that internal controls should reduce a specific risk. If a control does not address a risk, then all you are doing is adding to the bureaucracy without gaining any value in return. This is a sure way to kill any efficiencies within the business.
Looking to reduce the risk of fraud in your business? Contact us for a free consultation.