By Bianca Stoffberg, audit manager at BDO South Africa

Fraud is one of the greatest threats to businesses, with smaller business entities more prone to becoming victims of fraud, as they often lack the staff numbers to put clear task segregations in place.

Warning signs

• Creditors’ reconciliations and debtors’ age analysis that do not align with supporting documents;
• Consistently missing deadlines;
• A sudden increase in sick days, or the number of days that an employee works from home (working from home allows an employee to perform fraudulent activities without the risk of being seen);
• Sending wrong information when requested, thereby delaying the process so that the person can try to reconcile the schedules;
• Employees living beyond their means;
• Increased complaints from suppliers relating to non-payments;
• Increased complaints from customers relating to statements not reflecting their payments;
• Payments on business bank cards made outside of normal business times and at unusual business-related suppliers.

What you can do to prevent it

Business managers and/or directors need to review monthly bank reconciliations, the payroll summary debtor reconciliations, the creditor reconciliations and the petty cash reconciliations.  Any variances should be investigated and supporting documentation should be available. Companies also need to segregate duties: the person who performs the payroll should not be preparing the EFT requisitions (including amending banking details of employees) – the same goes for creditors’ and bank details.  If the director is not the only person authorised to add or amend supplier details on the EFT banking profile, then he/she must review the banking details when releasing EFTs to the supplier invoice to ensure that the banking details loaded by the employee are valid and correct.

Restrictions should be placed on the software utilised in the business. Ideally, certain individuals should only be granted access rights based on their operating function. This will ensure that creditors’ banking details and even that of staff on the payroll cannot be amended at will.

Every quarter, business managers and/or directors must compare actual figures incurred to budgeted figures, and also obtain explanations for any unusual variances, such as no movement in creditors in the last three months, unusual increases in payroll expenses, bank balances being lower than expected, discrepancies in cash flow, etc. Conducting proper background and reference checks on all potential employees is a worthwhile investment.

Examples of internal business fraud

People have become increasingly tech savvy and when a person works with an accounting system everyday they grow comfortable with the “shortcuts” and bookkeepers have an opportunity to manipulate the figures on an accounting system without the knowledge of the directors.

According to Mary-Anne Greisdorfer, audit manager at BDO, other instances of fraud that BDO has uncovered are through computer programmes that can edit PDF documents by taking valid creditors’ supporting documents and editing the banking details, thereby creating fictitious creditors. Greisdorfer further highlights that petty cash and the use of business bank cards are other places where fraud creeps in.

How this goes unnoticed

When entities downsize, directors are given more operational responsibilities, rather than focusing on business development, which leads to directors neglecting the required monitoring controls, since they have too much on their plate. Time-pressed directors are often just looking at the bottom line and not reviewing the output produced by the accounting software, ie reconciliations, age analysis, etc. Additionally, increased workloads can lead to managers in the accounting department possibly not scrutinising a junior’s work carefully enough.

What to do if you think you’ve discovered fraud

If there is proof of fraud, the client can open a case with the police.  However BDO recommends that you first speak to a criminal attorney as they would be able to advise you on a case-by-case basis what recourse the defrauded parties have.

BDO provides audit, tax and advisory services in 154 countries, with over 64 300 people working out of 1,400 offices worldwide, including South Africa.