Accountants must help small-business owners to detect and avoid fraud

Accountants need to play a key role in supporting business owners, particularly small-business owners to put in place systems to minimise the risk of fraud. They need to assist small-business owners to detect and avoid fraud.

Unfortunately, small businesses experience fraud losses at a rate of around 200 times that of larger businesses. Internal fraud is a big issue for small businesses with more than 50 per centof frauds involving losses of less than $100,000.

Many small businesses are susceptible to fraud because they lack the necessary accounting controls, usually allocate bookkeeping and accounts management responsibilities to one person, tend to place greater responsibility and trust in people and are less likely to be audited.

Business owners usually start their own business because they have a passion for something. Many do not have a lot of experience with finances, so they often hire a single person to take care of finances. To make things easier they also give this person access to the bank account. Fraud happens at small businesses mainly because responsibility is concentrated with one person.”

The most common types of fraud in SMEs include:

  • Payment of fraudulent invoices. Fake invoices are raised for non-existent suppliers and monies are paid into an unidentified bank account
  • Payment of inflated invoices. Staff collude with suppliers to submit inflated invoices. These are then paid by the business and staff are given a kickback from the supplier. Unfortunately this a very common scenario. We saw this recently with the alleged fraud against NAB involving an executive and bank events supplier
  • Issuing of fake refunds to customers or clients
  • Payroll fraud. Payments are made for overtime or for hours which did not take place. In some cases, depending on the size of the organisation, fake employees are created in the payroll system
  • Cash theft. Skimming of monies for non reported sales
  • Online payments. Busy bank accounts which have many transactions are at risk of additional payments being made

All accountants need to be trained to be able to assist business owners to better equip their operations to minimise fraud. There are some simple things business owners can do:

  1. Firstly, they must ensure all staff are carefully vetted and appropriately trained. In the case of bookkeeping roles, additional checks must be made to determine the person’s suitability.
  2. Secondly, there must be a separation of duties for roles that involve accounts management and money handling.
  3. Thirdly, regular oversight is essential. All accounts must be checked and audited on a regular basis to identify the nature of every transaction in a randomly selected period.

Accountants must be trained to probe, identify unusual activities, delve into the detail, and ask the difficult questions. When it comes to working with small businesses, accountants need to ensure a business is not only well structured and compliant but also minimising its risk of fraud.

Coco Hou, CPA, Managing Director, Platinum Accounting