Fraud costs the UK economy many times
more than all other types of crime taken together and it affects
small businesses every day of the working week. The incidence
of fraud is hugely under-reported as the police have no interest
in recording fraud as a crime unless they are also making an
arrest. The fact is that there has been, and continues to be,
exponential growth in the perpetration of fraud, brought about
by the increase in cross border travel and ease of international
communications through new technology.
We have all seen the emails which are dressed up to look like
banks and other financial institutions. Danger often comes
closer to home for small businesses and may be less obvious.
An Inside Job
‘Internal’ fraud is instigated by an employee or sub-contract worker
and may include where an employee assists an outsider.
Small businesses, particularly in the IT world, rely primarily
on trust in their employees or outsourced service providers.
Increasingly it is no longer necessary for employees or sub-contractors
to be gathered together in an office. Most software or web developers
can operate just as efficiently as a ‘network’ of
people working from different locations.
If essential functions, such as financial record keeping, are
conducted at a location remote from the core business, then the
possibilities for fraud are almost limitless.
In recent experience we found that a trusted employee had formed
a company with a very similar name to the name of the company
for which he worked. Hence a bank account in a confusingly similar
name could be opened. A proportion of payments properly due to
the employing company were banked into the account of the other
company. A downturn in sales was reported to cover this theft.
In another substantial internal fraud, a director had created
a company of his own which he then commissioned to provide work
for the company of which he was a director. As he held the cheque
book, he wrote out hundreds of thousands of pounds worth of cheques
to his own new company for unnecessary work that was never done.
Spotting or Preventing Fraud
The common thread in each case is that the guilty party controls
the information flow back to the core of the business. There
is no independent overseeing of the flow of critical information.
Those in charge of a small business are often entirely pre-occupied
by the need to keep work coming in, to make the product or to
service customer needs. In such circumstances it is very easy
to miss the critical tell tale signs that the business is being
defrauded as the more that is lost inevitably means that more
hard work must be done to make up the shortfall. A self perpetuating
spiral of decline ensues.
Those who conduct their own small businesses would be wise never
to leave any single aspect of the conduct of the business in
the hands of one person.
If you feel that your business is not as successful as it should
be, then call Stuart
McIntosh on 0121 308 2118 or visit www.business-lawfirm.co.uk.
Stuart is a specialist commercial solicitor working with SMEs
on a day to day basis. He is also an ex-policeman, having
spent a good deal of time in the fraud squad. So he’s
perfectly placed to advise on this subject. |
