Fraud audits for companies and organisations

Fraud is an ever increasing problem for companies and organisations of all sizes. According to the Certified Fraud Examiners recent survey in 2008 in the USA alone, around US$994 Billion was lost to fraudulent activity. Fraud is a different form of commercial crime, the very nature of how it is carried out means that the victims are unaware of the fraud unless it is uncovered during an audit, an investigation, a whistleblower or else it becomes so substantial that it begins to serious damage the very wellbeing of the business. As business continues to move faster and payments and transactions move ever more onto computers and the internet, the scope for fraud grows ever larger.

Based upon this, how can you be sure that you and your company are not unwitting victims of fraud right now?  One method to answer these questions and take steps to prevent fraud is to have an external expert conduct a forensic anti-fraud audit on your business or organisation.

Broadly speaking a forensic anti-fraud audit seeks to:

1.    Identify the opportunities for fraud within your business;
2.    Identify the controls and procedures which protect your business from fraud [and those that don’t];
3.    Verify financial transactions that are not adequately protected from fraud as being valid or suspect; and
4.    Fix, introduce and monitor controls to protect your business from ongoing

Transactional fraud

  • Transactional fraud occurs whereby employees or managers responsible for making payments to employees [pay roll], suppliers, creditors or financial organisations make false or erroneous payments to themselves or entities they control. Transactional fraud provides the widest scope for dishonest employees to defraud the company or organisation.

A simple example is the use of double payments. The employee pays a legitimate supplier normally via EFT then makes another payment via cheque for the same amount to themselves or as `cash’. The employee then enters this additional transaction as a further payment to the supplier and keeps the money for themselves. This results in the business appearing to be less profitable unless the fraud can be identified and halted.

Other dishonest employees create false or `ghost’ suppliers while they create false invoices for goods never supplied or services never provided. The dishonest employee then creates and approves illicit transactions to supposedly pay for these fictitious goods or services.

Areas which a fraud audit can take action include:

  • Confirm whether a supplier is genuine, verify address and business records [are the contact details the same as an employee?]
  • Via data mining with company and bank data, match transaction to invoices to identify over payments or unjustified payments;
  • Look for double payments within a short time period;
  • Examine pay roll lists and verify against data mined transaction data to determine ghost employees or over time claimed but not worked

Fuel charge fraud
Employees are commonly given an expense account for fuel purchased in relation to travel to / from work plus travel on the behalf of the company meeting clients, attending meetings etc. Often such expenses are not closely monitored and unjustified or dishonest claims can quickly surface.

A fraud audit focusing on possible fuel charge would seek to review the available records and data in relation to fuel claims and:

  • Review details as to size of petrol tank for claimed car and mileage completed
  • Match quantities [in litres] of fuel purchased to size of fuel tank – does the receipt indicate that more fuel was purchased than could be fitted in the tank? Are they filling up their spouses’ vehicle at the same time?
  • Review the frequency of fuel purchases to claimed mileage – do the purchases fit the mileage and seem reasonable
  • Compare the address of the fuel station against the claimed travel route – if a trip was from KL to Melaka, why does the receipt show an address in Ipoh? Do the dates match for the claimed travel

Fraud audit purposes
A fraud audit review seeks to provide the comfort that fraudulent activity had not occurred whilst identifying improvements and efficiencies for internal controls with an implementation plan and ongoing monitoring.

A fraud audit seeks to supply enable a company with a better understanding within the business of the need for improved fraud risk management processes and effective management of a
potentially damaging incident in terms of reputation.

However fast your business is growing or how large the company has become, remember that “Fraud can happen to anyone, including well run and respected businesses” and may be happening right now eating away at your profits and will only get worse until it is addressed.

Do you need to know more about our services and how Regents can assist you with preventing fraud and money laundering? Simply go to our Fraud Investigation page for further details and us send an email to contactus@regentsriskadvisory.com with your contact details and we will respond at once.