Last year 70 per cent of companies around the world were victims of lost revenue due to fraud, according to a recent report by risk analysis agency Kroll.
Of this fraudulent activity, procurement fraud was the fastest-growing category, increasing from 12 to 20 per cent of companies affected over the course of a year.
Globally, the most common type of fraudulent activity was identified as bid or contract rigging, while for the UK construction industry in particular it was order manipulation and false representation.
The scale of the problem
The Association of Certified Fraud Examiners’ 2012 Global Fraud Study revealed the construction sector alone saw fraud and corruption leading to an average loss per company of $300,000 in – highlighting the impact such activity can have on a business.
“The study revealed that smaller businesses tend not to have as many controls in place as their larger counterparts when it comes to guarding against fraud”
The same study also revealed that smaller businesses tend not to have as many controls in place as their larger counterparts when it comes to guarding against fraud.
For example, only 18.5 per cent of businesses with fewer than 100 employees train their staff to spot fraud, compared with 59.4 per cent of those with more than 100.
As a result, these smaller firms are likely to be suffering losses that could otherwise be prevented with adequate fraud detection measures in place.
However, despite these figures, and despite a general growth in awareness of the issue, CIPS fraud advisor Paul Guile recently warned businesses that the full extent of fraud remained unknown, and was not being sufficiently recognised as a risk.
Reviewing the situation
Firms of any size should be encouraged to foster a culture of fraud awareness, in which employees should feel confident in challenging any behaviour or activity they believe could harm their company.
“In order to identify incidents of fraudulent activity as they happen, staff should be trained to look out for signs such as changes in spending patterns, schedules, orders or times”
Indeed, according to the research, 43.3 per cent of identified cases of fraud were initially brought to light by tip-offs from members of staff.
In order to identify incidents of fraudulent activity as they happen, staff should be trained to look out for signs such as changes in spending patterns, schedules, orders or times.
Further warning signs
Additional warning signs could include an unusual lack of control and competition around the bidding process, or low initial bids from vendors followed by excessive revisions in costs.
Similarly, employees – especially those concerned with finance – should be wary of excessive amounts of invoices with round values, and any series of repeated invoices with non-sequential numbers from any one particular vendor.
Regularly auditing suppliers can help to eliminate false contracts and also offer the opportunity to question any unusual practices.
The above are just a few examples of the steps that can be taken to raise awareness of the possibility of fraud or corruption from both inside and outside of a company.
Ensuring that a company, its staff and its suppliers are aware of what fraud looks like, are open about their vigilance and aren’t afraid of speaking up, means businesses will soon be able to start minimising the risk of losses.
Pedro Vaz Paulo is CEO of Gatewit