In 2009, the press was filled with revelations about the expenses claimed by MPs. Many were no doubt only claiming for what was allowable under the rules as they were interpreted. This made me think of how vulnerable businesses might be to fraud.

As the recession bites, people become more inventive at finding ways to beat the system. For some, it might just be the intellectual challenge of breaking an apparently watertight system; for others, it may be the need to pay the mortgage or feed that family that drives someone to exploit weak controls or a system loophole.

According to the Merseyside Police website  http://www.merseyside.police.uk/, no precise legal definition of fraud exists. The term is used to describe such acts as theft, deception, bribery, forgery, corruption, false accounting and conspiracy to commit these offences.

Any organisation is vulnerable. So what can an organisation do to identify and prevent fraud?

Some preventive measures are obvious like    

* Review your management control systems for weaknesses.

* Always check the bank and trade references of both   suppliers and clients.

          * Use trade protection organisations and credit reference agencies.

          * With new clients you can protect your financial position by asking for part payment in advance, or making only partial deliveries. You can also ask for personal guarantees.

* If you are suspicious of any individual, remember that there are legal trading restrictions placed on undischarged bankrupts and on disqualified directors. (A list of bankrupts is held at your local Official Receiver's Office, and of disqualified directors at Companies House).

The protection required in IT systems is more complex but software is available to restrict access to systems or websites.  Have Internet usage policies in place and enforce them. Change passwords regularly and particularly when someone leaves. In a recent review by accountants Saffery Champness, it was stated that firms are turning away from online banking because of the perceived fraud risk. Specialist help to protect your IT system can be useful.

In the end, it is the people you employ who make the difference.

The management of a business sets tone of the organisation and its attitude to risk and fraud. Most employees look at what their seniors do rather than what they say or write in codes of conduct.

Knowing your employees is key. Watch out for warning signs, for example,

¨       Changes in employee behaviour

¨       Key personnel not taking all their holidays, or just taking them in occasional days, rather than one or two weeks at a time

¨       A lifestyle that is not consistent with the salary you pay them

¨       Relationships within the organisation that can create an opportunity for collusion

¨       Internal pressures that create an environment where employees are in fear of their jobs so that they “fiddle the figures” to achieve an expected result