Dealing With Fraud: Fail To Plan, Plan To Fail

Any fraud redirects hard-earned revenue away from a business and into the hands of a criminal. It leaves less money available for the business to reinvest and has the potential to harm or even destroy its existence.

It isn't only the actual amount of the fraud that is lost to the business. Many fail to consider the additional costs not necessarily seen on the profit and loss statement, for example, the time it takes staff to investigate the offence or the costs incurred in bringing external experts into the organisation to investigate the offence.

Below are some of the issues that should be considered when developing a plan for dealing with fraud

• Reputation risk
  
  Often, when an organisation is in its initial growth phase, it is the organisation's reputation that is relied upon until it is large enough and established enough to trade off its brand. When an organisation is growing it doesn't have the luxury of large advertising budgets and marketing departments. An organisation's reputation is its most valuable asset.
  
  Reputation risk, therefore, must be a key consideration for any business owner when developing a plan to deal with potential fraud.
  
  
• Develop a media policy
  
  While an SME may not consider it necessary to have a formalised fraud recovery plan and a media policy, it should be considered when and how the media are to be handled to minimise any risk to the organisation's reputation before they become the victim of a fraud. This way you are more likely to handle issues in a controlled way and reduce the risk of adverse media and market scrutiny.
  
  One key question can help bring reputation into perspective: Is your organisation at risk of significant damage if knowledge of a fraud within the business was to be publicised in the media?
  
  It is recommended that the time be taken to develop a fraud control policy and appropriate media process. It does not have to be complex, but should detail what action you will take should a fraud occur. 
  
  
• Consider future operations
  
  Further to the impact on your business' reputation, is the impact on your future operations. Unlike large companies, smaller organisations often operate on tight margins and cannot tolerate significant downturns in profits for prolonged periods. Consider the following:
  
  
  • Are customers and suppliers likely to take their business elsewhere for fear they may inadvertently become involved in the fraudulent behaviour of one of your staff?
    
    
  • Would the publicity of a fraud have the potential to significantly reduce revenue or your ability to secure goods and services on credit?
    
    
  • Does the business rely heavily on government contracts that may be jeopardised as a result of a fraud?
    
    

  These questions need to be asked and answered so that you are prepared.

• How do you treat the fraudster?
  
  Will the fraud be reported to the police and will the person's employment be terminated? The answer to both these questions should be ‘yes'. However, it is once again the responsibility of the owner and/or management to develop an appropriate fraud control policy around these issues.
  
  Reporting to the police - When a business is considering whether they will report the matter to the police, they need to consider a number of issues. For example, it is reasonably common for a person who commits fraud in one organisation and is not prosecuted, to move on to another organisation (and regularly from one business to another) to commit fraud again. If the first business has not taken appropriate steps to have the matter criminally prosecuted, it may be your business that falls victim next.
  
  Terminating the employee - When it comes to terminating or not terminating a person's employment, the business needs to consider two main issues. Firstly, if the person has committed fraud once, what is the likelihood they will again? Secondly, what message does it send to other employees?
  
  
• Be prepared
  
  The time taken to develop a fraud control policy may seem unnecessary when everything is running smoothly for your business, but in the case of fraud, if you fail to plan, you plan to fail. Being prepared is one of the only ways your business may come out relatively unscathed.
  
  The prevention of fraud in any organisation is much more than a one-off alert to staff about being aware of what is going on around them in the workplace. Any preventative measure needs to be ongoing, comprehensive and cover all realms of possibility. And if you are an organisation governed by regulatory requirements, the choice of having to implement a preventative fraud program may not be so much of a choice but an imperative.
  
  Fraud planning process
  
   
  1. Implement a strong Fraud Control Policy
     
     
  2. Make sure all employees are aware of the policy
     
     
  3. Give employees a clear path to take to report fraud
     
     
  4. Take swift and decisive action if it does occur
     
     

  A good way to make sure they keep up to date with not only a Fraud Control Policy but all policies, is to have employees sign off at a yearly review that they have read and understand the policies.

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