While the precise nature of any fraud will be specific to the nature of an organisation and the opportunities afforded to a potential fraudster, there are a number of common areas where fraud can occur.
Most fraud impacts on the profit and loss account, where either expenses are overstated or income understated. Frauds here could range from a few pounds of fiddled expenses, where no one checks supporting documentation or reviews the reasonableness of the claims made, to more significant frauds involving the setting up of fictitious suppliers and the production of bogus invoices.
Positions could also be abused where an organisation requests tenders. Here there is a risk of ‘kickbacks’ where the individuals involved in the tender process accept bribes or sweeteners from potential suppliers. This could result in inefficient contracts being signed perhaps for dubious quality goods.
The individual amounts involved in these types of fraud may not be large, so they go unnoticed for some time. However as time progresses the amounts involved can become significant. Many fraudsters gain in confidence and the amounts involved escalate as they become ‘greedy’. Of course large scale frauds are more likely to be discovered and greed often plays a part in the identification and capture of fraudsters.
Nevertheless the time taken to detect fraud is vital. It may make all the difference to cashflow as fraud drains an organisation of resources that it needs to grow.
Where an organisation has few or weak checking controls, a supplier may recognise this fact and take advantage. For example fewer items may actually be delivered than those included on the delivery note. Invoices may include higher quantities or prices than those delivered and agreed.
This highlights the importance of checking both delivery notes and invoices and following up any discrepancies promptly.