Internal Fraud and abuse: a genuine risk. Did you get your assessment yet?

Are you aware where your vulnerabilities and risks are?

Occupational fraud and abuse is one of the most serious threats to business nowadays and yet it is also the one most overlooked. The Association of Certified Fraud Examiners estimates the average losses to businesses running up to 7% of the revenues as a result of misappropriation of assets and corrupt activities such as kickbacks.  With a Gross Domestic Product figure of 180 billion for the year end March 2009 in New Zealand, we are talking about a potential of $12.6 billion that was lost on fraud if we translate these figures to New Zealand by those that are supposed to protect the bottom lines of business instead of threatening them. I have found no documents that could indicate that the situation would be any different in New Zealand. What does strike time and time again in reading these reports is that especially smaller sized businesses are extra vulnerable and that is exactly what the New Zealand market consists of for the most part: smaller businesses. Economic times have put many under pressure and it is noted that occupational fraud and abuse appear to be on the rise. With times hard enough as they are adequate protection should be maintained even though it does not directly contribute to the generation of revenues. There are several steps you could consider:

  • Establish a whistle blower facility through which anonymous tips can be forwarded by employees, customers and vendors. Tome and time again this has proven to be a valuable tool in the timely detection of potential fraudulent activity;
  • Implement a written fraud policy detailing what will happen in case occupational fraud or abuse are discovered;
  • Provide fraud awareness training which could start by communicating existing procedures clearly but after that consider the help of a professional to assist your staff in learning how to spot the signs and what to do when they do spot potential fraudulent activity;
  • Ensure that your information security is up to date, and I do not just mean keeping intruders out but ALSO internally;
  • Conduct proper pre-employment checks. In the end: you hired the fraudster;
  • Appoint someone to take responsibility;

What these steps indicate above all is to take a pro-active stance instead of a reactive one. Damages caused by fraud and abuse can very quickly run up to substantial amounts if they stay undetected. No system is 100% fraud resistant but there are ways to ensure that frauds are detected as quickly as possible. This is especially important for smaller businesses, taking into consideration that full recovery is seldom achieved and the damages may be harder to bear. You would not be the first small business that had to close its doors or had to fire innocent employees because of the damages cause by occupational fraud and abuse.

THE BEST DEFENSE IS A GOOD OFFENSE. This is why businesses bring in professional outsiders that can assist them in identifying the gaps or weak areas. Dierckx & Associates Ltd offers the possibililty of a Fraud Risk Assessment: a comprehensive analysis of the vulnerabilities and risk tolerances in your business, an examination of existing fraud policies and measures and a determination of the adequacy thereof. Typically  this will result in a detailed report with findings and recommendations in the form of actionable steps to create more effective fraud prevention an detection.


A typical reaction on post such as this one will be that “we don’t have the resources to implement the suggestions you are making.” I am very well aware of the budgetary restraints that come with small businesses. Many effective controls and measures can be implemented at very low to virtually no cost. It is also important to keep in mind that if your pro-active measures prevent only one fraud or employee theft your efforts and associated costs probably have earned themselves back.

Don’t wait until it is too late. Contact us so we can discuss what your needs may be and where we may be able to assist you.

This post was originally posted at Dierckx & Associates.

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