Identifying and preventing fraud

Small- and medium-sized enterprises do not commit enough resources to tackling fraud.

Indeed, they often only think about it after it has happened. That is the conclusion of The Fraud Advisory Panel, which has just published a report to raise awareness of the ‘expanding’ risk of fraud in SMEs.

The report – Indications of Fraud in SMEs – aims to encourage owner-managers to consider how vulnerable their businesses are, the potential impact (in terms of costs) on their operations, and what measures they can take to prevent it.

Its author, Dr Andrew Higson, believes the first step to prevent fraud is to understand where it originates. He claims its springs from three main areas: employees abusing their position, suppliers taking advantage of their customers and businesses taking on customers they would be better off avoiding.

In terms of employees, his advice is to put in place preventative measures, such as restricting access to crucial computer systems using passwords and ‘banking’ cash takings on a daily basis to prevent employees from ‘borrowing’ money.

He says employers should monitor cashflow and the quantity and quality of stock regularly – fluctuations could indicate a problem.

Having a budget plan and comparing it with actual results is another way to bring discrepancies to light.

He says other danger signals are more subtle. For instance, complaints from regular customers or a change in an employee’s behaviour can be a sign of trouble.

Customer fraud prevention is equally important. The report advises SMEs that customer credit checks are essential, particularly with larger transactions.

Credit card fraud can be reduced by correlating the card’s registered and delivery address when taking payments over the phone or internet. Requests for extra proof of identity can also make it difficult to use stolen or forged cards.

Managers of SMEs who feel they do not have adequate fraud prevention measures in place, or who wish to keep abreast of current developments, can obtain a copy of the full report from The Fraud Advisory Panel.

See also: Beware corporate identity fraud

Ben Lobel

Ben Lobel

Ben Lobel was the editor of from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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Business Fraud