Good IT is key in the war against the enemy within – PKF – Times Online

By Liz Loxton
The challenges facing businesses when they fear they are victims of dodgy dealing
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DISCOVERING a fraud would come as a shock to any organisation, particularly when the fraudster turns out to be an employee or colleague. However, more than 80 per cent of frauds are committed by managers or employees, says David Dearman, a partner at PKF.

�Those individuals know the procedures and how the controls can be circumvented. I don�t think any organisation is without risk from employees,� Dearman says.

�Those individuals know the procedures and how the controls can be circumvented. I don�t think any organisation is without risk from employees,� Dearman says.

Raj Bairoliya, managing director of Forensic Accounting, says that smaller companies are often stretched in terms of the number of skilled individuals they can afford. Employees often have lots of responsibility and a great deal of control. What�s more, fraudsters are inevitably plausible individuals who inspire trust and make themselves indispensable.

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Businesses are often unsure of their first steps in investigating a fraud or how open they want to be about the possibility that one has taken place. �It really depends on the organisation and what its objectives are,� Dearman says. It may be that it will be unwilling to risk damage by compromising the business�s reputation or confidence among its suppliers. In these cases, he says PKF is often called in to conduct a discreet investigation.

If the objective is to make an example of the suspected perpetrator, or if the fraud continues and losses do not stop, an investigation is likely to be far more wideranging. The first step will often be to remove the suspected fraudster. Dearman says he recommends that companies begin by instructing a solicitor to ensure that any dismissal is watertight.

The first moves in an investigation are crucial. And with technology playing an everincreasing role � both in fraudulent acts and in their detection � IT expertise will be essential in the early days of an investigation. Many organisations are vulnerable because of the use they make of the internet, or the access they give to trusted employees to financial procedures or sensitive information. But calling in IT experts early to look into a suspected fraud often gets results. �IT is undoubtedly a double-edged sword but it has a sting in the tail for the fraudster,� he says.

An IT expert will be able to uncover a great deal of evidence including documents that the fraudster believes he or she has deleted successfully plus a history of access. It is essential to get help, however, as there have been cases where even turning on a machine compromises evidence.

In a fraud investigation, Bairoliya says he begins by looking at where the cash is generated and how it moves: �With fraud, you have to get the cash out at some point. I look to see how I would do it. You look at the weakest areas and assess what could go wrong.�

He considers that involving the police in small-scale frauds can seem too onerous. �Given the low priority police place on investigating fraud and the limited resources, even some quite large frauds are of limited interest to them unless it�s a straightforward case where the bulk of the work has already been done by the victims or their advisers.�

Many businesses may consider that any funds recovered are unlikely to make up for the inconvenience, cost and publicity of an official investigation followed by a court case. �Everyone�s time costs money, and if you are in a high-profile industry then certainly there will be the fear of your customers hearing about a fraud and starting to believe that your controls are not adequate.�

There also needs to be a realistic assessment of how much of the loss can be recovered. �You are not always looking at huge recovery. People who take money tend to spend it,� he says. That is not to say that there are no success stories.

�A lot of fraudsters are business people. They steal money and put it into property. If a person steals �100,000 and invests in a property that accrues to �250,000, the person losing the money is entitled to �250,000.�

Central to any investigation from Bairoliya�s point of view is an insight into the culture and pyschology of the organisation. Sometimes frauds are committed by individuals who joined an organisation during its earliest days, he says. Their efforts may have contributed to the company�s success, but because they don�t have shares in the company they won�t receive the same level of financial reward as the directors, for instance. Bairoliya says that these individuals may commit fraud and see their actions as completely justified.

�The great thing about fraud is the way people � particularly professional people � can rationalise that what they are doing is fair,� he says.