Planning firms leave fraud door wide open

by |

An increasing number of SMEs are failing to protect themselves against the risks of employee fraud, according to accounting and advisory firm William Buck.

Leo Tutt, head of the firm’s audit focus group said many SMEs were overlooking basic control procedures, leaving the door open for opportunistic employees.

“Whether it’s a lack of understanding or putting too much trust in their employees, many business owners are failing to identify and rectify weaknesses in their processes,” he said.

“Generally, there’s always some sort of control flaw or failing that enables fraud to take place.”

Tutt said some of the ‘red flags’ for fraud that business owners should be looking out for include inconsistent results with expectations or trends, key people never taking leave, a lack of documentation for transactions and a failure to complete timely reconciliations.

“Employers need to focus on having processes in place to prevent fraud from occurring, rather than trying to deal with it after the fact,” he said.

“Training in fraud awareness, a fraud policy and conducting pre-employment and employee screening are all ways of proactively managing the issue.”

ASIC raised concerns over the pre-employment screening of advisers in its review of financial advice industry practice. The regulator said that lack of adequate reference checking allowed ‘bad apples’ to remain in the industry.

“Some did not conduct reference checks, while others attempted to but found that previous licensees were reluctant to provide references or there were restrictions on the references provided,” ASIC said in the report.

Licensees will be held liable for any poor advice from advisers, even if they have not yet had the opportunity to audit the adviser, said ASIC.

Tutt highlighted external audits as being extremely effective in helping business owners manage employee fraud because they can pick up any variances in management accounts with audited accounts.

“But it also has the effect of acting as a deterrent to any potential fraudsters as there is a perception that there is an increased risk of getting caught.”

  • David Sharp, partner of DFK Australia New Zealand on 13/08/2013 10:08:22 AM

    There is often a risk exposure in SME businesses to fraud as business owners and managers do not understand what risks may exist and how risks can be managed. Often they perceive risk management requires implementation of time consuming and expensive systems. Unfortunately there is often a lack of engagement by external accounting and audit advisors in recognising the presence of a risk and then advising how the risk can be efficiently managed. In many cases there can be a few simple controls put in place that not only manage the risk of a fraud occurring but will ensure the business consistently produces a quality product. The best way to identify these controls is to obtain advice from an accountant with both business accounting and audit experience. Working with business owners and managers a series of controls can be put in place tailored specifically to the way the business operates to minimise risk and maintain quality. In short while the risk may not be able to be eliminated it certainly can be managed.
    David Sharp, partner of DFK Australia New Zealand

WP forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Name (required)
Comment (required)
By submitting, I agree to the Terms & Conditions