Fraud at the boardroom table

There have been a number of articles lately highlighting the danger of employee fraud. Statistics indicate that it has been on the rise which is, perhaps no surprise given the tough economic climate and increasing pressures on family budgets.

However it is not just junior employees committing fraud. Jeremy Rowe, director of Pierce Forensic Ltd, explains that directors and business owners may also give into such temptation where the opportunity arises or desperation takes hold:

"The business owners, whether shareholders in a company or partners in a partnership, may have the power to override any controls or systems put in place to protect the business assets or may simply bully those below them into not questioning suspicious activities. This can lead to a very damaging culture in an organisation wherein employees think that if the bosses are having something for nothing then it is alright for everyone else to have something," said Jeremy.

"It is not uncommon in professional partnerships for one of the partners to be in charge of the administration and bookkeeping. This may be considered a low priority by the other partners who are keen to get on with the “real” business of winning work and generating income. This can provide an opportunity to a dishonest or desperate individual to manipulate the books and commit fraud. There have been a number of cases of solicitors “borrowing” from the client account, financial advisers stealing investment funds and accountants diverting funds for their own benefit.

"Part of the problem may be that partners and shareholders may enter business together in a mood of optimism and mutual trust. Controls may not be considered necessary at the beginning as they try to build up the business. However as the business grows it becomes more difficult to know everything that is going on and cracks may open in the relationships between the partners.

"Business owners should be aware the temptation and opportunity can present themselves at all levels of an organisation right up to the top. They should be aware of what their partners or fellow directors are doing and what pressures they may be under both inside and outside of work.

"Ultimately the bosses should provide an example and set the tone for the organisation by ensuring procedures and controls are in place and not routinely overridden by those in charge. All this is not to say that there should be a snooping culture, but individuals, particularly those handling money or recording transactions, should not be left completely to their own devices without any anyone else showing an interest no matter how senior they are.

"Thankfully reports of large scale fraud are relatively rare. However, where the bosses commit the fraud it tends to be for a significant amount which can have a devastating impact on the business. The right culture in an organisation together with some common sense and controls in place can prevent such problems." Jeremy Rowe is a member of the Fraud Advisory Panel which is a leading independent organisation which aims to raise awareness of the damage caused by fraud and to develop effective fraud prevention strategies.