Fraud is a problem, never more so than during times of economic hardship. It will not be surprising then that, according to the recent annual FraudTrack report from BDO Stoy Hayward, total reported fraud in the UK stood at £1.19 billion for 2008 - up 14 per cent on 2007’s figure of £1.04bn.

Many investigations are started by a whistleblowing letter within a business or organisation and 99 times out of 100, there is something wrong at that business. The advice is clear - always look into the claims made and investigate. The whistleblower may not actually be correct, but there is usually something amiss.

Paradoxically, whistleblowing may fall during a recession as employees will not want to rock the boat in the sea of a precarious employment situation. Stories about redundancies are now common and many people are just thankful for having a job. Why would they want to cause trouble by whistleblowing?

The demographic of a fraudster is all too familiar year on year. Males aged between 20 and 39 make up the largest group of fraudsters, with the second-placed category being males aged 40 to 59. Some 80 per cent of all the frauds in this year’s survey were committed by men.

So what can you do to protect your business from fraud?

Motive

• Be wary of false accounting -particular attention should be paid to relationships between the sales team and customers.

• Review your bonus structure - fraudsters rationalise to themselves that their performance is worthy of reward. Ensure that your bonus structure is fair and transparent.

Opportunity

• Consider remote locations - there is often a link between fraud and the distance from head office. For example, within a London-based organisation, a small, seemingly profitable, regional subsidiary will often get less management attention and therefore the opportunity to commit fraud increases.

• Pay attention to areas where there is no physical product - any area of the business that has no physical product is often more susceptible to procurement fraud.

• Assess IT vulnerability - fraudsters use widely available tools, such as keystroke loggers, to obtain sensitive data like PINs and passwords. Appropriate administrative controls and passwords, prevention of unauthorised software installation, restrictions on USB ports and other measures can cut the risk of fraud.

Indicator

• Don’t neglect over-performance - if something is too good to be true, it usually is.

• Review changes to the supplier master file. This is part of a computerised accounts payable system where data is held on suppliers, including their bank account details. It is very important that an exception report is produced if any changes to standing data on the supplier master file are made.

• Monitor the car park - pay close attention to cars parked in the management car park and consider whether the salary you pay certain managers warrants the vehicles they drive.

• Perform background checks on recruitment - don’t give those with a flawed history the chance to commit fraud in your company. More than 50 per cent of people lie on their CV, so pre-employment screening can prevent the employment of those lacking integrity.

• Pay attention to morale - fraudsters are often dissatisfied with their work and rationalise their entitlement to further reward.

• Investigate high staff turnover - management should pay particular attention to those areas of the business that have high staff turnover. It is good policy to have a system of exit interviews for staff in place.

Simon Bevan is national head of BDO Stoy Hayward’s fraud services team.