How digital enablement can help reduce cyber crime and fraud

While most business owners understand the risks they face from fraud, whether that be threats from cyber attacks or as we will consider here, internally from white collar crime, a surprising number lack the systems and controls to mitigate these threats. TaxAgility Accountants can help you fight these threats through digital enablement.

digital enablement in accounting helps to reduce fraudFor instance, a report by Symantec, the antivirus software firm, highlights that 43% of cyber attacks target small businesses. Why? Because the fraudsters know that these firms haven’t invested in the security, control systems and processes that they ought to have.

In this article, we’ll look at how the process of digitally enabling your firm can help mitigate a lot of the threats facing your business today.

Fraud isn’t just a problem faced by larger firms

When hearing about the problems faced by large firms caused by fraud, often internal fraud, smaller business owners may not relate to them. Often, owners feel that their firms are unlikely to suffer the same issues, the - “we’re a small fish, why would fraudsters bother with us?” syndrome. What these owners fail to realise is that often, external attacks are not perpetrated by people, but by bots. Only when a bot breaks through, do the real fraudsters get involved. Then they’ll take what they can get.

While the technology challenges of doing business in a digital world expose businesses to online attacks, another threat vector that smaller business owners overlook is the people they employ. Owners may feel that their staff are entirely trustworthy. Many may have been with the firm for years. However, when someone’s circumstances change, whether because they run into personal issues or whether they are being coerced by external forces, a trusted person can often cause more long term damage than a direct external threat, especially if such an event leaks out to customers and suppliers. This is one of the main reasons a large number of such fraud incidents go unreported.

Many factors may drive employees to commit fraud within their employment, also known as white collar crime. The most common scenario is when an employee gets into dire personal financial stress. If the employee is able to manipulate or embezzle small amounts of cash unnoticed, and that eases their pain, they may well be tempted into stealing larger sums. When somebody is under significant financial stress, it becomes easier for them to self justify, even telling themselves that what they are doing is justified and that they will pay it back before anyone notices. Unfortunately, that seldom happens, and the employer eventually finds out. Trust is then eroded, not just with the individual concerned, but suspicion may fall on others which will likely upset harmony in the company.

With threat vectors originating both internal and externally, what can a small to medium sized business do, and what do potential solutions have to do with digital enablement.

The role of digital enablement in reducing fraud

Cynics may suggest that it’s because we are communicating more and our company’s operations have become more complex digitally, that being digital is the problem. There is of course an element of truth to this, as new technologies and automated processes can lead to data exposure, as indeed we’ve seen in the news.

Digital transformation though, is unavoidable, largely because it is mainstream and those your firm does business with are in the same boat. Financial systems are almost entirely digital now, your customers and suppliers are transforming. Failure to transform and enable digital service connections will mean that your business will not be able to compete and will suffer severe performance issues.

So, the question therefore centres on how digital enablement technologies not only increase your business’s efficiency, through process automation and service connectivity, but also increase your firm’s resilience to the threats we have seen?

Common types of fraud in the workplace

To see how digitisation of a company’s systems and processes may help with fraud, it is useful to summarise some of the most common types of workplace fraud, these include:

  • Holiday and sick leave manipulation.
  • Theft of cash or equivalent - such as, inventory/equipment/office and raw materials.
  • Falsified overtime, fictitious employees.
  • Unauthorised corporate credit card purchases.
  • Fabricated receipts.
  • Fictitious travel vouchers or purchase orders - i.e. non-existent vendors.
  • Forgery of official document approval .
  • Falsification of transaction details such as false mileage expense claims.
  • Entertainment without a legitimate business purpose.

Most often these examples of fraud can only happen because of lack of management oversight, poor controls, poor ledger and reconciliation reviews and, in busy companies with tight resources, poor separation of duties that allow the same individual to raise and approve purchases, work orders and payments to suppliers - typical in smaller businesses.

How can digital technologies assist in reducing and even preventing fraud?

Most fraud in businesses originates from the lack of oversight and process integration. Fragmented and dissimilar accounting and reporting systems, such as those used to track sales, expenses, payroll, purchases, accounts receivables and accounts payables, provide a wealth of opportunities for an internal fraudster to hide their tracks.

We are continually surprised to find smaller businesses that still track many of these processes using Excel spreadsheets. They’ve used them for years, many are customised using complicated macros developed by external consultants, and so they have been reluctant to drop them. Such systems hide multiple opportunities for manipulation.

The key aspect to reducing fraud in such systems is by reducing manual entry complexities and through automation and oversight. Digital systems and applications target key functional aspects of a business, such as payroll, accounts receivables, sales and purchasing. Such systems provide enhanced visibility, tracking, reporting and authorisation through the creation of process rules, making it very difficult for an employee or external threat to commit fraud without an alarm being generated.

Historically, it’s not been that easy for a manager to gain a detailed look at cash flows without having to deep dive into the back end accounting systems. The reports generated are simple summaries and hide the real issues that may be lurking behind the scenes. Today’s digital applications, though, allow the full detail and authorisation change of transactions to be revealed with a click of a button. Xero, is a great example of this, providing easy to understand management information, but an equally easy audit trail to pursue if things don’t look quite right. There’s no need these days to wade through reams of paper statements looking for problems, cloud based systems can be accessed from your mobile devices wherever you are.

Improving and integrating your business processes through the use of advanced digital applications and services increases transaction transparency and accountability, and improves the overall efficiency of your business. Here are some examples as to how this may work in your business.

1. Decoupling the old and the new

It helps to maintain a dose of realism when tackling process improvement. Smaller businesses are limited by resource and budget. There may be legacy systems, perhaps an inventory system, that can’t be replaced immediately. Identifying the slower systems from those that need to be faster paced, helps a business focus on what can be achieved shorter term. Often the greatest improvements to a business can be realised by improving the customer facing systems and processes. Decoupling these systems from the legacy systems helps, as it compartmentalises potential fraud opportunities and increases the number of your business’s processes that have greater transparency.

2. Automating basic accounting functions.

This is where the latest generation of cloud based services excel. If processes such as accounts payable, accounts receivable, payroll, etc. are automated to a high degree, it’s very difficult for them to be tampered with without triggering some form of alert.

3. Streamlining and automating aspects of customer facing systems.

Companies that use e-commerce extensively in their business, perhaps because they operate an online store, understand this very well. Such systems are highly automated and provide a high degree of customer satisfaction. They minimise the need for staff to be involved in the processes of sales, order fulfilment and inventory control. By thoroughly examining your business processes, especially those that are customer facing and choosing to digitise them through the use of sales or customer service portals, again reduces the opportunity for fraud.

4. Use the cloud

Long gone are the days where there’s a need to update critical software on a PC. Of course, such software still exists, but for the most part applications focused on the basic operations of a company, particularly the financial operations, are available in the cloud. This means they are accessed through a secure web browser connection. Using cloud based ERP & CPM systems (for larger businesses) and cloud based accounting software suites, can drastically cut costs and increase the time people have to focus on the core of their business. Not only that, but many cloud based accounting services have a multitude of plugin additions that can be used to customise your operations through functional additions (e.g. payroll, financial controls, enhanced AR, online payment tools), further increasing efficiency. Many are available on an industry related basis too.

Integrated cloud based systems decrease the number of exposed end points often used by fraudsters to gain access to sensitive financial operations, such as through hacking office based systems, exploiting employee based phishing schemes, accounts payable fraud, etc.

5. Analytics and reporting

It’s critical that as a business owner and manager you have fingertip access to data, whether that be raw data or interpreted. There are artificial intelligence applications and advanced analysis tools available that help make sense of your day-to-day operations and in developing forecasts. The enhanced reporting they provide makes it much easier to spot nefarious activities or to trigger internal alarms and restrictions when rules are broken - whether intentional or not.

TaxAgility can assist with your digital transformation process

As an accountancy firm and tax advisers, we’ve had the privilege of working with a huge variety of small and mid-sized businesses. We are familiar with typical systems and processes they employ within the finance and operations departments. We're also very aware of the digital applications and tools available to these companies that are essential to achieving the goals of process improvement, enhanced business efficiency and fraud reduction.

As our client, we can take a look at your operations and make recommendations as to the ways you can achieve these goals. We may have seen or have been involved in similar improvement examples to your business.

Call us today and talk through your needs and we’ll explain how our digital enablement experience can help your business.

Do I need to complete a tax return this year?

Many workers go through their working life never having encountered HMRC’s form SA100 - Tax Return for Self Assessment. With economic pressures such as growing inflation and the significant impact of the rise in cost of living, more people turn to a second job or turn to other sources to help supplement their income and pay the bills.

In such circumstances, you may well need to file form SA100. Also, many underestimate the complexities of income sources and types that can also affect whether you need to file or not. Here’s why and how to check to see if you do.

The SA100 Self Assessment tax return form

Do i need to complete a tax return this year?Mention form SA100 to an average person in employment and they may have never heard of it. This is because employees are on what’s known as PAYE - Pay As You Earn. Simply put, the taxes and national insurance you owe as a result of being employed are paid automatically to HMRC through your wages. They appear on your wage slip as things like Tax, NI, pension payments and adjustments for personal allowance and benefits in kind.

Those who do need to annually complete an SA100 include:

  • Those who are self employed
  • A company director with income not taxed through PAYE
  • A partner in a partnership business
  • A minister of religion
  • A trustee or the executor of an estate

For the most part, the only encounter the average employee will have with HMRC is through the Notice of Coding you may receive when your circumstances change - such as changing jobs or receiving benefits in kind. However, there are circumstances where you will most likely need to complete and return an SA100 Self Assessment tax return. Here are most of those instances.

Regardless of whether any of the situations below apply to you, HMRC may still ask you to complete a Self Assessment tax return.

If you believe any of the factors below relate to you, the government has an online tool to further help you assess your tax position and the need to fill out an SA100, here.

Circumstances that may require you to complete and return an SA100 Self Assessment tax return

A company director

If you are a company director and receive an income that is not taxed at source, you’ll need to complete an SA100. This typically includes basic salary and any dividends and any benefits in kind.

Sources of untaxed income

This may be from interest on bank accounts, shares, or rental income, for example. If this is below £2500 per year, even though you may not need to complete an SA100, you must still notify HMRC of the income. You can do that here.

Also, if you receive any other untaxed income which cannot be collected through your PAYE tax code, you will have to file an SA100.

Trust or settlement income

Regular annual income from a trust set up for you or from a divorce settlement will need to be reported through an SA100. Also, if you receive income from the estate of a deceased person, that tax has not been paid on.

Foreign sourced income

There are many potential sources of foreign income, including:

  • If you worked abroad and received wages
  • Investment income from overseas share dividends or foreign bank account interest. However, foreign dividends will be covered under your UK dividend allowance.
  • Income from overseas pensions
  • Overseas rental income

Find out more at the government’s site here.

Non-resident and receiving income

You are a non-resident, but that doesn’t necessarily exclude you from paying taxes in the UK. This would include non-resident landlords.

You can find out more here.

Income from savings and investments

If income from these sources exceeds £10,000 before tax, you’ll need to report it.

Annual income exceeds threshold

Report through the SA100 if your annual income exceeds £100,000 before tax.

Child benefit and adjusted net income

You or your partner receive child benefits. The higher income child benefit charge will apply if your adjusted net income is over £50,000.

Other tax charge liabilities

An excess in Gift Aid contributions or pension contributions.

State Pension lump sums

If you deferred a state pension lump sum from April 6 2016, you’re liable to tax on this payment.

Coronavirus payments

If claimed a coronavirus support payment incorrectly and have not already paid this back, you’ll need to report this.

Expense claims

You have claimed £2,500 or more in expenses for the tax year, this needs to be reported.

Capital gains

You’ll need to check whether any of the following is true. However, capital gains calculations can be a little tricky. You can find out more here or call TaxAgility and we may be able to assist.

  • Assets sold or bestowed worth £49,200 or more for the tax period 2022/23
  • Where you have capital losses, but gains net of losses exceeds the 2022/23 £12,300 annual exemption.
  • Gains greater than the annual exemption of £12,300 in 2022/23.

In the case of capital gains arising through a residential property sale, you need to complete a separate return within 60 days of the property’s sale.

How TaxAgility can help

Every year around December and January, we receive many requests for assistance with personal tax returns and filling out the SA100. This is because, every year, people underestimate the implications of their tax situation. Unfortunately many leave it to the last minute to fill out the form believing there’s to be a simple case and realise otherwise.

You can avoid this stress and hassle if you review your sources of income and the factors listed above. Upon doing so, if there are any issues you feel are not so simple, simply call us and ask us to assist with your SA100 Self Assessment tax return. This will help you avoid the potential for penalties for late returns and inaccurate declarations.

Call TaxAgility today on 020 8108 0090 and speak to one of our knowledgeable team members about how we can help you with your SA100 Self Assessment Tax Return.