The Housing Internal Audit Forum has recently reported that:
"Fraud is on the increase as the recession bites."
It's a sad fact that registered providers are not immune to
employee fraud, especially in light of the current financial
pressures. This is not only because the incidence of fraud is
increasing but also when it does occur, boards, bankers and other
stakeholders want to know what precautions the directors had taken
to prevent or limit the damage. Ignorance of fraud is no defence;
it is now recognised as a business risk to be managed in the same
way as any other business or financial risk.
So what practical steps can we take to reduce the threat of
employee fraud? When fraud happens, how can we mitigate the loss
and bolster the confidence of the board of trustees that the CEO is
still in control?
The guiding principles for an effective fraud risk strategy are
prevention, detection and investigation. In an ideal business
world, prevention controls would be strong enough to stop all
fraud, but this might also grind the company into the ground due to
the sheer bureaucratic burden. Also, past experience has taught us
that if a fraudster is sufficiently motivated and can justify his
or her action, fraud may happen despite the tightest controls. We
therefore need the other two principles: to be able to detect fraud
as it is happening; and then investigate it once we have detected
it, or as is more likely someone blows the whistle.
These three principles should be linked in a virtual circle
where lessons learnt from investigation are used to improve
controls, where weaknesses in controls identified during prevention
activities lead on to selected detection procedures, which in turn
Don't think it won't happen to you; rather than waiting
for the inevitable, review your anti-fraud procedures now. Here are
a few elements every association can easily incorporate into their
Fraud risk assessment – understand the fraud risks
that you face
Pre-employment screening – ensure that all staff are
appropriately screened before you employ them or before you promote
them into a more sensitive role
Whistleblowing procedure – how do employees report
suspicions of fraud?
Senior management accountability – are
responsibilities for fraud prevention understood?
Audit of employee compliance with policies and procedures
– test controls, don't assume they are effective
Tone at the top – what is senior management's
attitude to employee fraud, how do they communicate this attitude
Corporate culture – how does the corporate culture
support the business' attitude to fraud?
Fraud awareness training – do staff understand what
fraud looks like and the damage it can do to the association?
Code of conduct – are codes of conduct clearly
communicated with employees?
Disciplinary procedures – are staff clear about the
consequences of committing fraud?
Reporting fraud to the authorities – what is your
organisation's attitude to reporting fraud?
Career counselling – how do you manage your
Do you have an effective communication system for employee
complaints? – by far the most likely avenue of
Employee participation in own performance goals – do
staff feel that have some control over how they are appraised?
Finally, avoid placing excessive rewards and punishments on
performance as these can be strong drivers for fraudulent
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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It is true that accountants are well ahead of most other professions when it comes to risk management and certainly, the "big four" have had in place risk management processes and dedicated resources far earlier than solicitors.
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