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.