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8 ways to ... fight the fraudsters? Forget about high-profile cases, most finance directors are most worried about the low-level fraud that affects their organisation. Peter Bartram considers eight ways to combat this threat ...

1 Provide leadership from the top

"Setting an anti-fraud policy and leading by example improves attitudes towards fraudulent activities and sends out a message that it will not be tolerated," says Kellie Edwards, head of forensic practice at Salamanca Risk Management, a security and operational risk firm.


"Board members need to be encouraged to speak to all related parties, including staff, customers and suppliers at all levels," she says. "Board members need to come down from their ivory tower and feel the earth beneath their toes--even if it is just to check that it's not quicksand."

2 Identify the key risks

Many organisations don't even consider fraud to be a key risk, argues Alex Plavsic, head of KPMG Forensic UK. "This is often a combination of the poor capture of fraud within an organisation--hidden in losses such as stock write-offs, claimant errors or budget over-runs, and a lack of awareness of the organisation's fraud risks and how they would manifest themselves. Properly capturing and reporting fraud often pushes it up the agenda at organisations. One practical way of identifying whether it's underreported is to benchmark reported fraud against the experiences of comparable organisations."

3 Promote an anti-fraud culture

"A strong tone from the top lets employees know that the executives, the board and management have faith in, and rely on, the compliance programme for ferreting out fraud and abuse," says Tracey Stretton, legal consultant and e-disclosure expert at Kroll Ontrack Legal Technologies.

"A company must also invest time and resources in its staff," adds Mike Wright, partner at BTG Global Risk Partners. "Initiatives, such as employee share schemes and team performance rewards, can help to support a greater sense of shared responsibility that will not only discourage internal fraud, but also encourage employees to identify external fraud."

4 Develop effective anti-fraud controls

"When organisations fall victim to supplier fraud it's often because when processes fail, there is insufficient awareness of the fraud among staff to make them query the payments," says Plavsic.

"For example, the second signature needed to change the bank account details from the genuine supplier to the fraudster is just a tick-box exercise that doesn't include any scrutiny. Or the telephone confirmation is carried out using the phone number supplied by the fraudster, rather than the one held on file for the supplier. A targeted awareness campaign by the organisation about this type of fraud, and what to watch out for, can be more effective than the addition of yet another process."

5 Encourage and nurture whistle-blowers

Middlesex University's professor David Lewis, convenor of the International Whistleblowing Research Network, says: "Whistle-blowing arrangements should be introduced following consultation with trade unions. The contents of a policy and procedure should include the principles upon which it is based--who can invoke it, the types of wrongdoing that should be reported and the amount of evidence needed by a discloser."

Lewis's tips for an effective whistle-blowing policy are: concerns should be raised through the line management structure, but alternative mechanisms should be made available. As far as possible, people who ask for it should have their identity kept confidential. Staff should have access to free confidential advice.

Allegations need to be screened so that investigations are only conducted in appropriate cases. Feedback should be provided to disclosers in order to demonstrate that concerns are being taken seriously. All staff need training in the whistle-blowing arrangements.

6 Develop a response plan

"The best time to plan is before a fraud occurs, not afterwards," says Will Kenyon, partner in PwC's forensics practice. "Be clear about your ultimate objectives, which may vary from one situation to another. Who needs to do what? Who should be involved in an investigation (and who shouldn't)? Early steps need to secure evidence, reporting lines and PR strategy."

Kenyon warns: "The occurrence of fraud may be out of your control, but the way you respond is within your control and you will be judged on it."

7 Harness technology to fight fraud

High-performance analytics is one of the biggest counter-fraud weapons since the advent of social network analysis, says Michael Rhodes, senior fraud consultant for SAS UK and Ireland.

"The ability to analyse vast quantities of data in a relatively short space of time, or even real time, gives insight into customer or employee behaviours that may be indicative of fraud," says Rhodes. "The content of emails, social media postings and voice data can be analysed using high-performance analytics in a way not previously possible because of the sheer processing power that is required."

8 Develop good internal controls

Aim to have 100 per cent of invoices linked to purchase orders, advises Adam Simon, global managing director of business development at PRGX, a business analytics and information services firm. "Moving from paperwork to electronic platforms makes it easier to monitor workflow and track invoices through the system," he says.

Companies can fight expenses fiddles--another common fraud--by adopting automated processes.

"For example, linking the employee expense management system directly with the travel agent or flight booking system, or even having the company credit card statement automatically loaded into the expenses form, will provide the transparency required to remove the chances of employees upgrading without authorisation," says Gary Waylett, chief executive of Eclipse Group, which provides business management systems.

When it comes to fraud, there is change in the air, says Waylett. "In the wake of high-profile employee fraud cases, is it really worth the risk of sitting back and hoping for the best?"

Peter Bartram is the author of The Perfect Project Manager (Random House Business Books)
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Title Annotation:The list
Author:Bartram, Peter
Publication:Financial Management (UK)
Geographic Code:4EUUK
Date:Sep 1, 2012
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