Following on from last months article on fraud and preventing it and not relying on your auditors to spot everything, given some of their high-profile failures, here is a list of 23 best practices that will help prevent fraud.

This is by no means a full list, but having these in place will for sure help put a business in a better position when it comes to preventing fraud.

Best Practices

  • Regular external audits – whilst I’ve pointed out many failings in the audit process and system, they do still have a place
  • Regular internal audits – a combination of external and internal audits is important. Internal audits provide a different emphasis than external ones but must be properly managed so they are not just a tick box exercise
  • Being aware that if something sounds too good to be true, it probably is – how many times have people looked back and said this
  • Know your business – you cannot allow important aspects of your business to only be known to other people – leaves you open to risk
  • Keep on top of your debtors and who is paying and who isn’t – be aware of up to date information on your clients via credit checks, credit score, companies house updates (did you know you can set up a free alert service to let you know when information is published to Companies House for any company)
  • Identify any areas where you are vulnerable to risk or fraud – treat these as a priority
  • Have policies and understand who can make payments for the business and to what level and with what controls in place
  • Have relevant insurance in place
  • Have internal controls in place – and regularly update them
  • Control cash – where cash is involved, there needs to be controls
  • Manage payroll systems – checks on who is on payroll and how much they are paid. Often this is one of the largest costs for a business
  • Have policies in place and systems for bribery and kickbacks control and management
  • Manage conflicts of interest as there are bound to be situations where this can occur
  • When taking on employees you need to make proper enquiries as to their past, qualifications and employment history
  • Manage the use of suspense accounts – many a fraud has been hidden in a suspense account
  • Reconcile the bank account to the accounting systems on a regular basis
  • Have policies and procedures in place to ensure liabilities are not concealed – remember Barings Bank!
  • Checks and balances need to be in place to ensure there are no fictitious invoices and/or revenues
  • External oversight can be a vital tool
  • Having whistleblowing procedures in place can help bring situations to the attention of senior management that would otherwise remain hidden
  • In many businesses, stock can be a considerable figure and therefore needs managing in terms of the value, stock takes, value of obsolete stock etc.
  • Always best to avoid overly complex transactions – it is usually complex for a reason and usually not a good one!