Business fraud and error, the word fraud with a red line through it, preventing business fraudUnfortunately, fraud is on the increase and preventing business fraud should be an ongoing priority for all business owners. 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 we were called in to investigate a very large tax debt that the IRD notified a client about, seemingly out of the blue. It nearly killed him.

We took a look at his accounts and found that his Accounts staff member had not paid the business’ PAYE or GST for more than six months, and that the IRD penalties and interest imposed had not been correctly recorded. The staff member had full control of the business’ cash flow management, general ledger accounting, responsibility for paying creditors, invoicing and debt collection. They were also the company’s sole point of contact with the IRD.

The staff member prepared a monthly balance sheet which the General Manager relied upon to track the company’s position. It was absolutely devastating for our client to find out that the figures in the balance sheet understated the debt by hundreds of thousands of dollars. The IRD served a Statutory Demand a few days after the ‘Final Notice’ notification, allowing only a few days for our client to investigate and respond.

It’s clear to see from this case that segregation of duties is absolutely essential for preventing business fraud and error. Unfortunately, the reality for many small New Zealand businesses is that staff numbers are low and do not allow for proper segregation of duties. It’s very common for small business staff to wear many hats. But 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, you must pay attention to the details. It’s OK to delegate, but it pays to keep tabs on the critical things. One of the many changes we’ve put in place is for my client to receive all IRD correspondence first and check for himself that IRD have been paid. And 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 wonderful, loyal team who would never dream of committing a fraud… but it’s still possible for significant errors to be made. Checks and transparency is a great way towards preventing business fraud and error.

If you would like to know more about what steps can be taken to prevent business fraud and error in your organisation please contact us  – we have a large team of skilled professionals that can help.