Dealing With Fraud And Error

The media reported recently that fraud is on the increase. Fraud is often a result of dishonest staff having too much influence or control over a number of key functions of the business. The consequences of course can be devastating. Error is not as sexy to report on as fraud but can be equally as devastating for a business.
Recently I was called in to investigate a very large IRD debt printed on a ‘Final Notice’ letter that appeared in a client’s home mail box. It nearly killed him.

It was found that the accounts person had not been paying PAYE or GST over the last six months and that the IRD penalties and interest imposed had not been correctly recorded. The person had full control of cash flow management, general ledger accounting and the payment of creditors. They were also the company’s sole point of contact with the IRD. The accounts person handled invoicing, debt collection and had full internet payment authority.

We found that the monthly balance sheet prepared understated the debt by hundreds of thousands of dollars. The owner of the business and his General Manager relied on the monthly balance sheet to track the company’s position. Everything seemed under control. You can imagine how devastating it was to be told that the IRD demand was correct. Incidentally, the IRD in this case was very aggressive.

They served a Statutory Demand a few days after the ‘Final Notice’ letter giving only a few days to investigate and respond.
Segregation of duties is ideal for assisting with the prevention of fraud and error but the reality for many small businesses is that they can’t afford the number of staff required for proper segregation. Redundancies within the accounts departments of small businesses increase the risk as remaining staff pick up more duties from those that have left.

This case is a timely reminder to review your internal control systems and the segregation of duties. Where you can’t cover off the risks business owners need to pay attention to the detail. It’s OK to delegate but it pays to keep tabs on the critical things. From now on my client will be receiving all IRD correspondence first and checking himself that IRD have been paid. One of our senior staff will fully reconcile the balance sheet monthly to ensure it is free of error.

You may have a great small and loyal team who would never dream of committing a fraud…. but are they skilled enough not to make a significant error?
If you would like to know more about what can be done to prevent fraud and error please let us know. We have a large team of skilled professionals that can help.

2017-12-20T10:31:04+00:00April 1st, 2012|Assurance, Fraud|