Start-ups are being urged to protect themselves from financial wrong-doing in light of new figures that show the cost of fraud has doubled in the last two years.
According to KPMG’s Fraud and Misconduct Survey 2010, the cost of fraud among respondents grew from $1.5 million in 2008 to $3 million per organisation in 2010.
The biennial survey tracks actual fraud and misconduct affecting approximately 200 respondents in Australia and New Zealand, including the public and private sectors.
The financial and insurance services sector is particularly vulnerable to frauds committed by external parties, but insiders are the main culprits in all other sectors.
Gary Gill, partner-in-charge at KPMG Forensic, says the survey should serve as a wake-up call for every Australian business, particularly as most fraud is preventable.
“Not only has the average value of fraud doubled in a short space of time, but the organisations surveyed believe that only one third of frauds are actually being picked up,” Gill says.
“I think with a lot of businesses, and particularly with a start-up, people are focused on making the business work and really trying to build success.”
“So maybe there isn’t as much thought given to the possibility of fraud impacting them.”
Gill says there has been a marked increase in frauds involving the abuse of internet-based electronic funds transfer facilities, with most of these frauds attributable to poor controls over access to EFT facilities.
Another approach is the ‘switch and switch back’ technique whereby an employee switches their personal bank account details with that of a vendor prior to processing an invoice payment.
Without controls such as electronic monitoring to detect an account that has been tampered with, it is often impossible to recognise the information has changed once the fraudster switches the details back again.
“Once your money has gone it’s extremely difficult to recover, so prevention and early detection is key to managing the risk of fraud in your business,” Gill says.
“The warning signs can often be mistaken for a conscientious employee, such as staying back late in the evenings, working on weekends and not taking holidays.”
According to Gill, start-ups need to closely monitor their cash, know what their cash balance should be, and act on any suspicious behaviour.
“To the extent you can, put appropriate controls in over who has access to make payments and regularly review payments that are being made so that if there’s anything suspicious, you pick it up quickly,” he says.