The Financial Reporting Council has warned businesses to be vigilant about fraud. As fraud cases reach record levels in the UK, the FRC estimates that fraud has cost UK firms over £1 billion so far this year.

The FRC’s director of corporate reporting, Ian Wright, believes businesses need to be very attentive to internal fraudulent activity. He said: ‘We are intending to remind people of one or two aspects, particularly of fraud, and balance transparency, information, and how important that is at this moment in time.’

Figures have revealed that management fraud is responsible for 46% of fraud cases, with 32% accounted for by third party fraud, and 11% of cases attributed to employee fraud.

This in mind, the threat to small businesses continues to grow as their limited resources means they are less equipped to install tougher security measures to prevent internal fraud cases. Some of the tips offered to small business include: monitor employees through screening and good training; if possible, separate accounting responsibilities, appointing different people to income and outgoing processing; have separate accounts for payables and receivables to avoid fraudulent invoices; always lock away signature equipment, invoices, and account information etc.; impose strict visitor access to offices; regularly change passwords; conduct regular audits so that all business activities are monitored; and check the business insurance policy to check if the business is covered for employee fraud.

Businesses are advised that if fraudulent activity is spotted, it must be reported quickly to halt any snowballing effect. For this reason, businesses should always check bank statements promptly so that any cases of fraud can be identified early.

The Fraud Advisory Panel go on to suggest that in terms of data security, companies should maintain a data protection policy and ensure all employees are aware of their responsibilities for compliance. If the policies are integrated into the formal contracts of employees, then it sends a message to employees including managers that small firms will impose severe penalties for any breaches of security.

However, in terms of consumer fraud, most of the UK’s small online businesses do not burden themselves with the blame, displacing the responsibility onto banks, credit card issuers and payment service providers. Of the 350 business surveyed by PayPoint,net earlier this year, 99% do not accept liability for fraud. Managing director of PayPoint.net, Alessandro Hatami explained: ‘Small online businesses lack the resources of their larger competitors but have an even greater interest in ensuring their customers have the safest possible experience on their site. This situation has led to a haphazard approach to managing fraud – which is in stark contrast to what larger businesses are able to do.’

In terms of customer acquisition potential, the cost of this is that of the 1000 consumers questioned, only 3% of online shoppers said they would trust small online businesses with transactions, with larger online brands being favoured.

Of the various types of fraud committed, it is estimated that over £15 billion is lost in the UK economy every year.

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