Date issued: 6 March 2007

With small business losing an average of $3.2 billion each year  through fraud, CPA Australia has joined a major push to increase awareness of preventative measures during the month of March.

The national SCAMwatch campaign, an initiative of the Australasian Consumer Fraud Taskforce (ACFT), aims to encourage the community to be aware of fraudulent activity, scams and swindlers.

CPA Australia’s SME Director, Aneta Pazeski CPA said, 'The campaign is all about making sure that small businesses don’t become easy targets. By recognising the dangers and putting the right systems in place to prevent fraud, the business can operate with confidence,' said Ms Pazeski.

Common types of fraud affecting small business can include: false invoicing; theft of inventory; credit card, cheque and petty cash fraud; manipulation of financial information; and fraudulent access to bank accounts (by adopting the identity of the account holder).

'In the world of small business, the owner is accountable for every aspect of the business – including the prevention of fraud – and they have only themselves to blame if they encounter such an incident. It could be that they are too trustful with employees or simply too busy managing operational issues to see the potential risks,' said Ms Pazeski.

Compared to larger companies, small and medium enterprises have fewer staff to check the effectiveness of procedures and systems in the business. They may also have limited resources to dedicate towards internal audit and monitoring internal controls.

Ms Pazeski’s advice to small business is: 'Don’t be a victim – putting simple processes in place will help improve business operations and minimise the risk of fraud and related financial losses.'

CPA Australia has a strong network of members in Australia and overseas working in finance, accounting and business who are able to provide small business and individuals with the right advice to protect their assets. It also has an online internal controls guide with a comprehensive checklist to help business reduce the risks and promote best practice.

About the SCAMwatch campaign

The Australasian Consumer Fraud Taskforce (ACFT) is an initiative of the Australian Competition and Consumer Commission (ACCC). The small business SCAMwatch taskforce comprises of representatives of the ACCC, ASIC, CPA Australia and Victoria Police.

Note to editors:

The next section has a snap shot of what a business should look for within major areas of their enterprise. Please view the full internal controls checklist online or contact Katy Hetherington.

Types of internal controls

Different types of controls are used to meet different objectives within the business: controls to safeguard assets; controls to ensure financial information is accurate and reliable; controls to ensure compliance with all financial and operational requirements; and controls to assist in achieving the businesses’ objectives.

Setting up internal controls

The types of controls that a business will need will vary, with the different flows of goods and funds within the operation. Some areas of the business are more at risk of loss or fraud and require more stringent controls.

Sales

• Make sure staff know how to handle returns and deal with customer complaints.
• Check sales figures from their individual source – such as invoices.
• Reconcile sales register with takings and credit card receipts.
• Make sure that goods are sent COD or with a tax invoice and obtain evidence of delivery.

Accounts receivable

• Conduct credit checks on new credit customers.
• Ensure credit purchases are recorded as soon as the transaction occurs.
• Separate the accounts receivable function and cash receipting.
• Have a well-documented and strict policy for the follow-up of overdue accounts.

Cash and bank accounts

• Never leave cheque books or blank cheques lying around.
• Owners should review the cheques, cheque register, cash register totals and bank statements regularly but not at predictable intervals (for example not every Monday morning).
• Reconcile bank accounts regularly.
• Ensure the accountant does not forewarn staff before. coming on the premises to conduct an audit.

Purchases and accounts payable

• Ensure payments are on original invoices only – not copies or faxes otherwise they may be paid more than once.
• Develop an exception report so payables over a certain amount are bought to your attention, and where practical set authorisation levels where the owner is the only one who can sign or commit the firm to certain amounts (such as those over $1,000).
• Put in place controls to check for identical payments.

Non current assets

• Laptop computers and data projectors are popular targets for theft so lock them to a desk.
• Once any asset is purchased it should be recorded on an asset register with all relevant details (this helps with the accounting as well).
• Allocate a staff member to be responsible for any expensive items, ensure staff know the location of the asset and lock it away when not in use.
• Review your physical assets regularly against your asset register and investigate any missing items. Make sure this is done irregularly not just on 30 June.

Payroll

• If an electronic payroll is used ensure supervisors change their password often.
• Ensure any payroll summaries are in the same type face as the systems printer to avoid possible fraud.
• Review bank account deposits to ensure that each pay goes to a different bank account.
• Where possible, segregate payroll preparation, disbursement and distribution functions.
• Beware of budget variations in payroll expense and investigate.

Find out more about your employees

• When taking on a new employee, always take the time to check out their employment record, ring the referees and don’t just rely on written references.
• Check out any education credentials that are essential to the operation of the business.
• Clearly outline responsibilities and expectations.
• Don’t misplace trust – one person in a small business usually bears an inordinate amount of financial responsibility. Review your office staff.

Staff feedback

• Develop a process for staff to report breaches in internal controls and report suspicious behaviour. Most fraud is detected by staff tipping off the auditors, owners or accountants.
• Reward staff for innovative ideas, perhaps a gift voucher for every usable suggestion.
  

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