Fraud prevention: it’s all about opportunity

Fraud in Australia is a persistent fact of life, affecting businesses of all sizes and across all industries. While there is no foolproof method of preventing fraud, the risk can be minimised by taking a systematic and considered approach to its management.

It is generally accepted that there are three primary factors influencing an internal fraud offender:

• Pressure/incentive
• Opportunity
• Rationalisation.

It should be noted that, for externally generated frauds, rationalisation is not something that necessarily operates on a perpetrator’s mind.

In our experience, of these three factors, ‘opportunity’ is the one factor present in both internal and external fraud offenders that is most easily managed in a business. It’s been long argued that opportunity to commit fraud, or other crimes for that matter, is often all that is needed, in the right circumstances, for someone to do the wrong thing. In fact, in the mid-1590s Shakespeare wrote the line in his play 'The life and death of King John':

How oft the sight of means to do ill deeds, makes ill deeds done.

In difficult economic times, the pressure/incentive component increases substantially. For example, people under mortgage stress and desperate to keep their homes, or managers attempting to meet revenue targets can find themselves under pressure and this can sometimes, where the opportunity presents itself, turn good employees bad. Organisations need to recognise this increased risk and have the foresight to deal with it. This is particularly relevant where businesses are looking to strip out costs, and perhaps reduce headcount, which can impact on the control environment.

The management of fraud risk should be a major component of an organisation’s enterprise-wide risk management. Remember, every dollar saved from fraudulent misappropriation is a dollar that finds its way directly to your bottom line, and those dollars could be finding their way to that bottom line now.

Ask yourselves these challenging questions:

• Does your organisation have policies and procedures in place to prevent and detect fraud and are they regularly reviewed?

• Is your organisation insured against the risk of loss arising from fraud?

• Do you have a workplace culture that promotes and encourages ethical behaviour?

• How confident are you that management and employees are aware of the fraud risks, and do your employees receive fraud awareness training?

Finally, the best fraud detector within an organisation is its employee cohort, and the best way to activate that fraud detector is to establish a mechanism through which employees can report concerns or suspicions in a safe environment. A well-constructed whistleblower protection policy and reporting mechanism has proven to be an invaluable asset to organisations.

Now is the time for companies to assess their risk and revisit existing anti-fraud measures, or quickly put measures in place, to manage this important risk.

For assistance, contact us

PKF Integrity has leading practitioners with extensive experience helping companies educate staff and mitigate fraud risk and we would be delighted to speak with you about how we can assist.