A survey conducted by Ernst and Young shows that fraud can pose a serious risk to the growth of any business. They found that 1 in 3 board directors and senior managers could justify offering cash payments to win or retain business. About 1 in 8 would be prepared to provide false information to management to improve their careers or pay.
In addition, they found that respondents under 35 years old are more likely to justify fraud or corruption to meet financial targets or help a business survive an economic downturn.
Unfortunately, most South African business owners only find out about fraud when it’s a tad too late. They believe that implementing fraud prevention measures such as conducting thorough background checks on new employees, reviews and balances on payments to vendors, or even rotating duties of employees in procurement would be enough to prevent fraud. But alas, they’re always proven wrong.
Different circumstances expose companies to fraud. For instance, when one employee performs multiple accounting functions and becomes too familiar with the company’s finances. Such events make defrauding your business’ too easy for criminals or employees.
Let’s explore the following ways that fraudsters use to defraud companies.
1. Fake invoicing
This type of fraud is also known as fraud invoices. According to Deloitte, employees have used fraud invoices in cahoots with suppliers to defraud their employers since time immemorial. For instance, in New Zealand, fraud invoice is regarded as one of the most common crimes that cost businesses millions. How it happens: Fraudsters pose as suppliers and ask companies to update bank details on an outstanding invoice. They can do this easily because they know which suppliers companies use and when payments are due to said suppliers. Every company is vulnerable to invoice fraud, but a company that still uses paper-based purchase orders is even more at risk. Here’s an example. In New Zealand, Jimmy Ming Miu, an IT Manager, defrauded his employer, McKay Shipping, more than $1 million over six years. Miu raised false invoices for IT equipment from Avanti Systems and Avanti Systems Integration. His employer didn’t see a reason to implement strict approval routings for purchase orders. Moreover, the purchase order system used didn’t allow his employer to monitor purchase orders in real-time. Another example. Hemant Kumar Maharaj and Suresh Din defrauded the former North Shore City (New Zealand) Council of more than $829,000 over ten years. The commission employed Maharaj, and he arranged for Din to submit invoices to him for payment for road and berm (a flat strip of land) maintenance that was never completed. The Council paid the invoices into a bank account controlled by Din, who split the stolen money with Maharaj. 2. Overpayment scam
In this case, a scammer can show interest in the products or services that your business offers. Then, subsequently, suggests paying your business using a check that exceeds the amount charged on the invoice. They will request that you pay back the difference because of an overpayment. You’ll only realize that you’ve been defrauded when you try to cash the check!
Solution: Avoid accepting check payments from new customers. Doing this will save you time and money.
3. The fake CEO
Picture this: You are in a jubilant mood because your meeting to secure funding for your new project was successful. But there is a surprise awaiting you. You return to the office only to find out that there’s a massive amount of money paid to an unknown supplier at your instruction. That’s what happened to Carol Gratzmullers, CEO of a medium-sized French company called Etna Industrie. Carol’s company has been manufacturing industrial equipment for nearly 75 years. Her workers fell for a spoofed email instructing the finance department to transfer money to a specific account. The fraudster used software that manipulated the characteristics of Carol’s email so that it looked genuine.
First and foremost, make sure that your employees are aware of all kinds of fraud. Consider using two-way authentication access to your email. Note that this won’t be as helpful when fraudsters decide to spoof your email address.
Another way of preventing email scams is to consider having policies and procedures for handling emails that request employees to wire transfers. For example, the email recipient should always pick up the phone to verify the request directly with the email sender before processing payments.
4. Employee fraud
When your company does not use a system that allows you to monitor your finances, employees might use that as an opportunity to steal money. They can do this through payroll fraud, embezzlement, diversion of funds, vendor fraud, etc.
Most employees find vendor fraud as an easy way to steal a company’s money. Your trusted employee, for instance, can assist a corrupt vendor in overcharging your company, and you might end up paying for goods that were not delivered!
Solution: Fraudulent vendors do not choose. They target small and medium-sized because they’ve noticed two things about them:
Those companies have no formal procedure of processing payments or that;
They are not using automated purchase order software. Companies should leverage new technologies to detect and prevent fraud in an increasingly digital and automated business environment where your finance team is tempted to steal more than ever before. Here’s how: The sooner you prevent fraud, the better for your business. Let MGT audit your finances and to avoid fraud in your industry. Email firstname.lastname@example.org The sooner you stop fraud, the better for your business.