PracticeConsultingComment – Facing up to fraudulent reality

Comment - Facing up to fraudulent reality

The business world appears to have been in denial about the dangers of undetected fraud - until the new Fraud Advisory Panel raised awareness, says Peter Williams.

Tony Bingham last week explained the work of the Fraud Advisory Panel. Some are already lining up to criticise, with the most common accusation being that the Panel will be nothing more than a glorified talking shop.

Only time will tell how much does change on the fight against fraud over the next few years. However, if the Panel does nothing more than create publicity and awareness then, by making business people talk about the reality of fraud, it will have done the vast majority of us a huge favour.

In this promiscuous tell-all age when any TV or radio chat show will discuss any problem under the sun, the business community is showing a Victorian attitude over its reluctance to face up to the ‘F’ problem.

The much-ignored reality is that we are on the verge, if not actually in the midst of, a fraud crisis. Fraud is rampant in both the public and the private sector yet most businesses seem unwilling or unable to even start to deal with the problem. There is an element of denial.

The very nature of the problem rules out the existence of reliable statistics and this makes it tempting to scoff at the doom-mongers. Those who insist there is a crisis are accused of exaggerating, mostly of course because they have a vested interest in making profits out of others’ fears.

Then there are those who are happy to admit that fraud is a problem – but always for other companies. But fraud is everywhere. Most business crimes aren’t mega-frauds but minor affairs that nibble away at the profit margin, quietly sapping funds away from the owners.

These are the frauds we should be tackling, but who is going to take a lead in their local business community? Auditors have spent years pointing out that management is responsible for the integrity of the controls in its business.

But a material fraud renders the accounts meaningless. Auditors must adopt an attitude to their clients which is slightly stronger than supine.

Finance directors have a major part to play in starting to fight back against fraudsters. They should know better than anyone else where the weak points are and where a fraudster is most likely to attack.

As a start, every FD should announce an anti-fraud culture for their business. Everyone should be aware that any suspicion of fraud will be treated seriously and fraud found will be dealt with severely. It may not turn your company into a fraud-free zone but it is a positive stance. In time some FDs may even start to mean it.

Peter Williams is a former editor of Accountancy Age and a chartered accountant.

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