Discovering a Fraud

It is always a disappointment when you discover that a trusted member of your team has been defrauding you or the company you work for. The impact on the business could be very extensive as the committing of the fraud will also subsequently bring other parts of the business into the investigation/resolution process. These other areas may include Human Resources, Legal, Finance and Internal Audit.

During this initial stage, it’s important to remember the legal consequences to your actions. The computer that was being used by the alleged fraudster could hold important evidence that could be used in a future civil or criminal litigation. Do you know the correct procedure for handling this evidence? How are you handling paper documents that may be relevant to the alleged crime?

It is in these situations that a forensic accountant with criminal investigation experience can assist you. It’s their job to co-ordinate the initial investigation, liaise with external legal advisers, the Police and the various departments in your company.

Once the potential evidence has been secured and other information is collated then the next phase is to decide whether the Police should be notified and action taken to recover the funds. A qualified Forensic accountant can also ensure that the information provided to the Police is in the correct format. This will increase the likelihood that the Police will prosecute the matter.

Once the dust has settled and the matter is being properly investigated, it is then time to ensure that the fraud can not be perpetrated again. An assessment of where the breakdown in internal controls occurred will allow changes to be made to prevent the loss from re-occurring.

Whilst this article outlines some basic advice, given the sensitivity of these situations and the potential legal consequences, we recommend that you seek expert advice if you find yourself in this situation.

Who are signing the cheques in your business?

The recent announcement that a Queensland property developer was imprisoned for 3 years for forging cheques (ASIC press release 09-89AD) is a timely reminder that all companies should review their cheque handling processes.


So what are some simple actions that you can take to ensure that you don’t have the same problem?

1. Check who the current cheque signatories are for each bank account in the business. Are these signatories up to date and appropriate given the current duties of each signatory? Do appropriate segregation of duties exist between the key people in the cheque payment process?

2. Are the cheques held in a secure place before they are mailed out?

3. Are bank reconciliations conducted regularly and differences isolated and reviewed. In many frauds we have investigated, a significant portion of frauds would have been detected earlier and the losses minimised if the bank reconciliations were properly conducted. In small to medium sized companies, we recommend that the Managing Director review the bank reconciliation on a monthly basis to ensure that this key process is done and there are no unreconciled differences.

Whilst the above controls are simple things that can be done immediately checked, the cheque payment process is just one of many processes where money can leak out of your business.

Over the coming weeks we will look at some other key areas to look out for.