Dr. Richard Stephens, Contributor
Scott Sullivan, WorldCom's former chief financial officer, leaves from the Federal Court in New York, August 11, 2005. Sullivan, the government's star witness at the criminal trial of former chief executive Bernard Ebbers, was sentenced to five years in prison for assisting in the $11 billion business fraud at the company. - REUTERS
DEALING WITH both deliberate and inadvertent theft has been challenging for many business persons and companies. The alertness of managers and company directors has to be at a high level in this age of technology and the fraudsters who can use it to their advantage.
Employees who have money problems, possibly brought on by overreacting on credit, gambling, drink or drugs, may also be lured into use of dishonest means to solve their problems. They probably won't talk about it openly, but changes in mood and behaviour may be indicators.
Not all fraudsters act differently. Some take a 'professional' approach to crime with methods that range from the glaringly obvious, and therefore unbelievable, but there will still be signs, though usually in the documentation.
Look for cheques for cash for unusual amounts - few businesses needs to draw cash from the bank in amounts which include cents. It can be a good idea to occasionally obtained sample cheques paid to check against cheque stubs.
Missing supplier invoices can be another danger sign. As can variations in design of invoice from the same supplier one may be the handiwork of the fraudster.
Invoices from a new and unauthorised supplier could be fictitious. And invoices replaced with photocopies might indicate that an original is being tampered with or reproduced in quantity.
Unusual and apparently unnecessary transfers between accounts and regular occurrences of mathematical error can suggest something is amiss. As can an unusual number of corrections not always easy to spot in computerised systems.
Should a fraud be uncovered, it is important if the identity of the perpetrator is not already known, to find out as quickly as possible.
However, this must be done in a way that does not alert the fraudster.
Actions of the fraudster will usually be contained within the areas of responsibility of just a few people, possible just one or two. If it involves paperwork, a comparison of handwriting is good enough, although this may need to be done professionally at a later stage.
Accounting is now computer based, so the computer log provides one of the most useful tools. This will give the date and time of all computer transactions and, providing a proper system of user identification has been enforced, it will identify who have made what entries.
If cheques are being made out of cash, enquiries with the bank should reveal the identity of the person withdrawing the money. And if the cheques are made out to a bogus company, the bank should be able to reveal the account holder.
Every business should have a strategy in place for dealing with possible fraud. Key issue include who should investigate and what authority he, she or they have. It also needs to be decided whether it is treated first as a matter of employment or a criminal law and if and when the police should be called in.
If the fraud involves misappropriation of client or shareholder money or the offender is in collusion with someone from outside the organisation, only the police have the authority to investigate, therefore professional legal advice should be sought at the outset.
Another and probably the most important objective of any fraud investigation is to secure or recover funds at risk. Floundering around without a clear set of guidelines could well mean the loss of both funds and the suspect. It could also lead to being taken to a tribunal by a wrongly accused employee or being sued for negligence.
Evidence of fraud can be obtained in many ways. Consideration could be given for the use of covert closed-circuit television or time-lapse photography and the monitoring of telephone conversations through the organisation's telephone exchange to assist in this process.
Video and audio tapes and computer disks need to be sealed and stored in such a way that they cannot be tampered with. As well, computer logs should be printed off as well as stored on disk.
But the best advice is to ensure that systems are in place to handle such a problem before it arises.
Dr. Richard Stephens.
FEMAT Richard Wayne Alberga Stephens & Co
Certified Chartered Financial Consultants
Incorporated Financial Accountants & Management Consultants.
