How You Can Detect Fraud in Your Business

How You Can Detect Fraud in Your Business Few things are as devastating to a business’ reputation as internal fraud – it undermines staff morale and creates a new uncertain relationship with stakeholders such as suppliers, investors and compliance authorities.

News bulletins and newspapers all talk of the massive corruption being unearthed in South Africa – don’t think your business is immune.

Build good control systems, particularly around procurement

The bulk of fraud happens around procurement which makes it a good place to start. Use your accountant here – you will need his or her expertise plus your accountant will have an independent, impartial view of your business.

Whilst every business is unique you should ensure your system has the following basics in place:

  • Thorough recruitment processes for procurement staff. Check for criminal records, debt judgments and properties and companies owned (a common method of fraud is buyers using a company they own to become a “supplier”). Also do exhaustive background checks to ensure his or her CV is consistent with the applicant’s lifestyle. You need to satisfy yourself that the person being considered has integrity.
  • Procedures should be robust – such as the three-quote system is used, new suppliers are carefully checked, a conflict of interest register is in place and maintained and gifts are declared.
  • Ongoing checks are in place by management independent of procurement where buying patterns are analysed, any deviations from procedure are checked for justification and authorisation, and you continually monitor the lifestyle of the members of the buying department.
  • Judgment and common sense should be your guide e.g. it isn’t time consuming to do an independent check on new suppliers whereby you phone their number (in the current Eskom/Transnet investigations, an early indicator of fraud is the supplier being essentially a front – the telephone is seldom answered and the address turns out to be a small unmanned office).

We all know how destructive fraud is to a business – make sure you put into place the systems needed to block it in your company.

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