Dealing With Business Fraud And Error

Business fraud and error, the word fraud with a red line through itIt is impossible to ignore the statistics showing that fraud is on the increase. Business fraud can often be a result of dishonest staff having too much influence or control over a number of key functions of the business. The consequences of fraud or error can be 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 prepared monthly balance sheet 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, and everything appeared to be under control. You can imagine how devastating it was to be told that the IRD demand was correct. 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 essential for helping to prevent fraud and error, but the reality for many small businesses is that they can’t afford the number of staff necessary for proper segregation.

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 for himself that IRD have been paid. One of UHY Haines Norton’s senior staff will fully reconcile the balance sheet each month 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?

Grant BrownleeIf you would like to know more about what can be done to prevent business fraud and error please contact us  – we have a large team of skilled professionals that can help.

Grant Brownlee is Managing Director at UHY Haines Norton. 

2019-05-16T13:55:59+00:00April 1st, 2012|Assurance, Fraud|

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