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Festive fraudsters risk to businesses

Written by: Grant Martinella on Monday, 3 December 2018

While the Christmas holiday break is traditionally considered a time to unwind and reflect on the past year, it can also be one of the highest risk periods for business fraud.

It is often when key senior management or CEOs take holidays leaving their businesses exposed to risk and opening the door for opportunistic fraud.

Fraud in the workplace can happen at any time but the risk is heightened during the Christmas holiday break, when firms can overlook basic control procedures as the people usually authorising payments are away.
Our experience in forensic accounting and audit shows people who commit fraud are generally under financial pressure, especially at this time of year when they face additional costs such as gift giving and Christmas celebrations.

Fraudsters are generally long-time trusted employees - they earn a good salary but have the ability and opportunity to override internal processes, such as payroll and accounts payable.

For instance, an employee may steal cash, expensive inventory items or valuable assets from the workplace or they may have a more sophisticated method of accessing funds by utilising false invoicing, creating ghost employees or temporarily changing source payment data. 

Warning signs

A fraudster may appear to have obvious changes in their lifestyle or their demeanour may change if they are under financial pressure.  They may appear guarded or are reluctant to delegate tasks, particularly when it comes to book keeping and processing payments.

They may often work out of hours or on weekends so they can process transactions when no one is around.

Some of the red flags to look out for include:

  • Inconsistent financial results with expectations or trends
  • Key people never taking leave
  • A lack of documentation for transactions
  • A failure to complete timely reconciliations.

Generally, there is some sort of control flaw or failing that enables fraud to take place.

Protecting against fraudsters

There is a number of risk mitigation measures businesses should have in place.

Consider developing and implementing a fraud policy which covers when, how and who to report fraud.  

Training in fraud awareness, enforcing compulsory annual leave and conducting pre-employment and employee screening are all ways of proactively managing the issue.

Having internal controls in place, as well as implementing third-party checks and audits are all important in helping business owners manage employee fraud.

External audits provide an independent assessment and comparison to best practice.

They will be able to pick up any variances in management accounts with audited accounts and can act as a deterrent to any potential fraudsters by highlighting the risk of getting caught.

Fraud may not be uncovered until well in the New Year when key staff return from leave.  It is therefore important to have the correct control procedures in place now to help prevent unwrapping a financial time bomb in 2019.

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