Employee fraud: what could it cost your small business?

Media Release
Employee fraud: what could it cost your small business?

2 September 2013

When it comes to employee fraud, a national credit expert warns small businesses they are particularly vulnerable to "losing it all" if fraud strikes, and cannot afford to be complacent about checks and procedures regardless of business size.

CEO of MyCRA Credit Rating Repair, Graham Doessel says SME's can easily lose their good credit rating right under their noses if an employee chooses to pilfer funds.

"Many SME's run on credit, having a smaller amount of capital - and it can mean some months are a delicate balancing act to get accounts paid on time."

"Even a single instance of fraud can mean accounts go unpaid, posing a great risk to the business' credit rating. In some cases it can also seep through to the owner's personal credit rating which can also be tied up with the business," Mr Doessel says.

The Australian Financial Review reported last month that close to one in two Australian businesses reported at least one incident of economic crime in 2011, with 16 per cent of respondents suffering losses in excess of $5 million. (1)

The AFR featured PricewaterhouseCoopers' Global Economic Crime Survey, which has been undertaken every two years since 1999.

The survey showed it's rare that fraud is committed by someone outside an SME. In a small business, employees tend to be given control of cash, inventory and accounts receivable and there are few monitoring systems to check on them.

"Operators of small and medium enterprises tend to believe, often incorrectly, that risk management to limit potential theft and fraud is too costly to implement. Other SMEs don't have the resources to respond adequately to crime and can be heavily damaged, or even bankrupted, by a single incident," it was reported.

Mr Doessel says if the business owner is not made aware of the fraud right away it can lead to defaults on the business credit file or the owner's credit file. The business can then face great difficulty obtaining any credit.

"Most businesses can't expand, they can't buy vehicles, or even take out mobile phone plans once there are black marks on the company credit file," Mr Doessel says.

He goes on to say, that instances of fraud, as with any negative listing which shouldn't be there, can be difficult for the individual or business to resolve.

"The onus is on the credit file holder to prove the listing has errors or shouldn't be there. Clients can often be given the run-around by Creditors, and there is less legal obligation on the Creditor in the commercial credit landscape," he says.

How To Prevent Fraud In Your Small Business

1. Reference Checks for Potential Employees

ASIC Spokesperson Joanna Bird recently told Australian Broker that in a review of industry practice they found there weren't enough businesses conducting thorough reference checks as part of pre-employment screening.

"Nearly everybody did a police check, but in fact not everybody did reference checking," she said. (2)

2. Credit Checks for Potential Employees

A Survey of Fraud, Bribery and Corruption in Australia and New Zealand published by KPMG earlier this year showed one of the top motivators for fraud was personal finance pressure. (3)

Mr Doessel says employers should consider doing a credit check on potential employees.

"A credit file check where appropriate, would certainly alert the employer to any major debts which could possibly provoke an employee to undertake fraudulent activity," he says.

Accountancy and Advisory firm William Buck also recently gave some insight into fraud prevention. Here are some ideas Director Grant Martinella offered to prevent fraud:

3. Check financial statements for any adjustments.

"Look out for any unauthorised accounting adjustments to financial statements and consider using software to report on any source data changes and discrepancies," Mr Martinella told Business Insider Australia. (4)

4. Be wary of key people who refuse to take annual leave.

"Fraudsters may be reluctant to go on leave to avoid having someone else take over their responsibilities and look over their work while they're gone."

"Enforce compulsory annual leave, segregate duties so people aren't acting alone, and ensure that there are clear reporting channels," Martinella says.

SME's who need assistance with their business credit rating following fraud can contact MyCRA tollfree on 1300 667 218 or visit their website, www.mycra.com.au.

ENDS

(1) http://www.afr.com/p/sticky_fingered_employees_found_KPZjUqkaEcB8m8YhKHZatL

(2) http://www.brokernews.com.au/news/breaking-news/employee-fraud-the-red-flags-you-need-to-identify-now-178606.aspx?utm_source=Australian+BrokerNews+eNewsletter&utm_campaign=bb8879c81a-ABNewsletter&utm_medium=email&utm_term=0_7af1e9f6de-bb8879c81a-43569498

(3) http://www.kpmg.com/AU/en/IssuesAndInsights/ArticlesPublications/Fraud-Survey/Documents/fraud-bribery-corruption-survey-2012v2.pdf

(4) http://www.businessinsider.com.au/five-signs-that-you-might-be-working-with-a-fraudster-2013-8 

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