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Fraud and corruption can be devastating for any business, especially when the threat comes from within your staff. Not only will this have the immediate effects of financial loss and potential legal consequences, but also you could face damage to your business’ reputation. Dealing with the aftermath of business fraud is difficult, but proper preparation can prevent it altogether or make it easier to deal with. If your preventative measures are sufficient, you can significantly lower the risk of fraud in your business. If you are proactive, it is also good to have a plan for when business fraud does occur. This article will: 

  • explain what fraud and corruption may look like at your business; and 
  • identify some structures you can use to prevent these offences.

What Is Fraud?

‘Fraud’ can cover a broad range of offences. Business fraud, in particular, refers to intentional criminal actions that involve deliberate deception to gain an illegal or unfair advantage within your business. This could include behaviours like:

  • recording fictitious profit;
  • claiming fake asset valuations;
  • misappropriation of assets through false invoices or payroll fraud;
  • insider trading; or
  • forgery or alteration of important documents.

Corruption is a kind of fraud where a person abuses their position of power for dishonest gain. This typically involves a lack of integrity and honesty. 

For example, if a staff member were to accept a bribe or use confidential knowledge that they gained through your business for their unlawful gain, this would be corruption.

Fraud can also refer to online scams that target your business, taking advantage of digital vulnerabilities. To avoid this, make sure your cybersecurity structures are up to date and efficient.

What Does Fraud Look Like?

Spotting business fraud at your small business seems like a relatively straightforward endeavour. If you keep your accounts up to date, you would think that large sums of money going missing or incorrectly labelled assets should stand out. However, if someone has specialised knowledge of how your business works and has access to its more intimate aspects, it may not be so obvious. Warning signs of business fraud may manifest as:

  • unusual cash payments;
  • financial processes without appropriate checks and supervision;
  • lavish gifts;
  • team members agreeing to illogical or unfavourable contracts;
  • avoidance of due process and checks;
  • unexplained preferences for certain contractors;
  • missing documents; or
  • invoices missing details.

How to Prevent Fraud at Your Business

Small businesses often report the highest instances of fraud because they do not have the necessary structures in place to prevent it. You trust the members of your small team, and it can be uncomfortable to think of possible ways they could exploit their place in your business. However, if you take steps to implement tighter security and reporting protocols in your business, you can save yourself the hassle in the future. You should make sure you are doing the following.

Identify Vulnerabilities

Conduct regular audits of your business and identify its weak points in terms of security and infrastructure. Engage independent experts who can conduct fraud risk reviews and recommend ways to make up for vulnerabilities in your business, such as making sure one employee does not have sole control over critical financial processes where possible. You should regularly audit the parts of your business that deal with:

If you find exploitable aspects of your business, find ways to fix those areas or account for those vulnerabilities.

Improve Security

High-risk areas of your business, such as your accounts and digital databases of sensitive information, should have robust security protocols. Ensure that you limit access to these areas to only the trusted staff that need it. This is especially true if you operate online, and you should proactively test your security systems to make sure they are sufficient.

For example, credit card and account security is something that you should check up on. Mixing personal and business accounts can lead to confusion and provide opportunities for unnoticed fraud.

Implement Business-Wide Policies

Enact a fraud and corruption policy at your business so that your employees and team members understand that you will not tolerate fraud. A definitive, well-communicated policy can go a long way, even just by letting your staff know that you are monitoring for fraud at your business.

Develop an Anti-Fraud Culture

Preventing fraud is more effective if it is a team effort. Train your staff so that they know: 

  • how to identify fraud; and 
  • who to report it to. 

Finally, make sure you conduct the necessary background checks when hiring.

Key Takeaways

Business fraud and corruption are weighty topics that you may not want to approach with your team. However, if you implement anti-fraud internal controls and make it clear that you will not tolerate fraud at your business, this can go a long way to prevent it in the future. If you would like more information or help to prevent fraud at your business, contact LegalVision’s regulatory and compliance lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is fraud?

Fraud is a kind of criminal conduct, involving intentional deception to gain an unfair or unlawful advantage. This can include lying about your profits or the misappropriation of business assets for your personal gain.

What is a fraud and corruption policy?

A fraud and corruption policy is a set of guidelines outlining how you plan to combat fraud and corruption in your business. It provides information for your staff on what fraud looks like and their responsibilities regarding reporting it.

What would fraud in my small business look like?

Common types of fraud at small businesses are often the mislabelling of assets or claiming fictitious profits. You should also keep an eye out for false invoices or payroll fraud.

I want to prevent fraud in my business. What are the warning signs?

Business fraud can be hard to spot if the individual knows your systems well, and has a lot of control at your business. Warning signs often include incorrect or missing invoices, abnormal cash payments, or missing documents.

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