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 financial service providers in its review of 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.
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.”