Economic downturns leave SMEs vunerable to scams

Date issued: 16 February 2009

Desperate attempts by small to medium-sized enterprises to boost their cash flow during the current economic downturn could result in an increased exposure to scams, warns CPA Australia.

The warning comes as CPA Australia launches its risk management guide for SMEs. The guide provides businesses with advice on how to identify and analyse threats and guidance on methods to deal with potential threats.

As the global financial crisis tightens its grip on the Australian economy, there is a growing risk that SMEs may be lured into fraudulent deals as they aggressively pursue new business opportunities to prop up falling revenue and profits.

CPA Australia members are reporting an increase in previously unheard of businesses, often from overseas, requesting purchases on credit. This scam exposes businesses to a high risk of never receiving payment for goods or services already provided.

CPA Australia business policy adviser, Gavan Ord, said that SMEs may be more susceptible to scams during economic downturns and must resist the temptation to lower their operating standards.

'Deviating from standard business practices and internal controls to chase short-term gains could leave businesses exposed to a variety of frauds and scams including employee fraud. Businesses must remain vigilant in managing risk if they are to avoid being stung by a scam which could lead to a loss of already scarce cash, or worse.

'The message is simple: businesses, particularly SMEs, could put their future at risk if they do not adhere to their own established business practices and manage their risk diligently,' Mr Ord said.

Other questionable business practices that businesses should be on the lookout for include the spruiking of non-traditional sources of finance (although some may be legitimate), previously unheard of suppliers seeking to sell supplies at a very low price for cash and schemes that promote ways to get around the law, such as early access to superannuation.

Businesses concerned about their exposure to possible fraudulent activities like those listed below should take the following actions:

• Not receiving payment for goods provided: Undertake credit checks of potential customers, verify who the potential customer is and who is behind that business, impose credit limits or use a letter of credit (if exporting).
• Unfamiliar finance options: Seek independent advice about the veracity of such options.
• Paying for goods that are never delivered: Implement financial delegation controls to manage staff purchases and conduct reference checks of potential suppliers.
• Getting caught in a scheme that promotes ways around the law: Seek independent legal advice.
• Employee fraud: Consider undertaking police and other reference checks on all new employees and implement internal controls such as splitting the roles of staff that count money in the till from staff that operate the till.

'If you are caught in a fraud then we recommend you inform the appropriate authorities as this will help to prevent other businesses from becoming victims,' Mr Ord said.