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The Financial Impact Of Fraud In Your Business

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Post The Financial Impact Of Fraud In Your Business   Sat Aug 13, 2011 9:29 am

Fraud is a secret crime, often gnawing away at the stability of a business from within. It goes undetected until its effects are so great that it may even be too late to do anything about it. This is why the amount of fraud is not accurately understood, because it can only be counted when it is discovered and investigated.

There is probably a connection between the incidence of fraud and the strength of a nation's economy. As an example, in countries experiencing widescale tax avoidance these is no investment available for public facilities such as hospitals, police forces and the like. For a business, a fraudster can cause a business to fail completely. Often fraudsters are only found out if the internal workings of a business are opened up when being scrutinised by an insolvency practitioner.

So what can be done about fraud, to prevent it from occurring in the first place? Money spent on fraud prevention need not be substantial to be effective, but when it is estimated that 7% of business profits on average are lost to fraud each year, spending on a few fraud prevention measures should merit a reasonable priority from management!

One of the best ways that a business can start to address the risk of fraud is by introducing what is commonly termed a formal "Fraud Policy Document". This is simply the recognition by the company, put in writing and communicated to all members of staff and even to customers and suppliers, that a firm stance against fraud is being taken.

A fraud policy is often a glossy book, published at some cost, particularly for large international businesses. However, it could be a short photocopied sheet of paper in the smallest concern. It must communicate important messages to the whole workforce, managers included. This message can be brief:

· The company will not tolerate fraud

· The company expects all staff to take the same position

· Suspicions of fraud must be communicated to the appropriate authority

· All frauds will be fully investigated and prosecuted

When managers install a suitably worded fraud policy and begin to demonstrate from the top that fraud and malpractice is not tolerated, the tone of the company improves and provides a less fertile breeding ground for fraud. What the policy achieves is a demonstration that an organisation is no longer complacent when it comes to fraud, and this "culture" will prevent all but the most determined fraudster from plying his or her trade. It is not possible to prevent fraud from happening one hundred percent, but installing a fraud policy will reduce the risk to a manageable level. It is an essential starting point before introducing sensible accounting controls and other fraud prevention measures.

Mark Jenner is a Fellow of the Institute of Chartered Accountants in England and Wales, a Certified Fraud Examiner and has a Masters Degree in Fraud Management. He runs his own forensic accounting business specialising in fraud and crime.

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