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Could Businesses Escape Financial Fraud?

Dentonia Macfoy

Dentonia Macfoy

Senior Accounting Associate

The financial scandals which have appeared in recent times have placed fraud at the heart of economic and financial issues. Several financial industries have been plagued with consecutive waves of financial crime. Starting from looting of thrifts to insider trading leading to the mergers-and-acquisition boom of undeserved wealth.

It is no exaggeration to say that companies and the financial sector in Sierra Leone have been faced with different criminal situations which have cost them their companies or their integrity. Fraudsters who commit these offences are well-trained and aware of how to receive the highest reward for their actions.

Since the awareness alert, every profession has come about with different definitions of FRAUD, yet they all tend to pass on the same message which is ‘an intentional act of deception to illegally secure unfair wealth or make statements to manipulate decisions of those charged with corporate governance.' On the other hand, 'financial fraud is a criminal offence used to infiltrate financial transactions and accounts to achieve a financial gain for the perpetrator.'

Financial fraud is one of the greatest challenges that large companies face year after year. Criminals are becoming more specialised due to advances in innovative technologies. We have stopped imagining a common thief with his head covered entering and robbing a bank. Financial criminals nowadays know much more sophisticated techniques to conduct all kinds of fraud. These scams leave individuals dejected, companies folding up and cause traumatic experience leading to irreversible impacts on victims, their families, carers, and communities.

Today, fraudsters are very sophisticated and have different modes and software they use to infiltrate individuals' financial information. Some of these modes assist fraudsters to access enough financial and personal information to create a fake card. This type is called Counterfeit Cards. It is a very deceptive form of financial fraud, as the victim will rarely be aware of this occurring due to them still having their bank card. It will only be brought to the victim's attention once enough fraudulent activity has built up to create a cause for concern.

Another is the Ponzi Schemes. In this scheme, financial fraud potentially takes place within the investment sector, as fraudsters have the potential to create an investment scheme which promises a high rate of return for fixed-term investments. However, in reality, the money is not invested and is used by the fraudster for their financial benefit.

Also, financial fraud can be done through Phishing wherein, due to the rise in online banking and the expanding cyber world in general, fraudsters have been able to utilise cyber outlets to attack online bankers. Phishing emails can be sent to online bankers with the pretence of being a bank, and therefore, they can request the login details and passwords of individuals without seeming out of the ordinary. Online bankers who invest in this phishing email will have their financial information compromised for the fraudster's benefit.

Lastly, the most usual form of financial fraud is money laundering which is committed when you get money from illegal activities and want to incorporate it into the banking system. These are some of the most common types of financial fraud. However, there are millions of ways to commit crimes fraudulently.

As innovative technologies are developed, new techniques are developed by fraudsters, which is why it is so important to have protective measures against fraud. YES, businesses can escape financial fraud though not entirely but can reduce the risk. One way of escaping financial fraud is knowing the employee being recruited. Unbelievably, employee fraud is a major problem in the business sector, regardless of the industry. Though most staff are loyal, there are always a few individuals that always try to cheat the system. There are certain traits that individuals who engage in fraud have. It is important to understand what each employee's personality is like. An attitude change can hint at a possible fraud, and by listening to your employees, you can notice angst that can lead to financial cheating (Behavioural Signs and Indications).

In terms of an attitude change, for example, an employee has been moved into a new room much worse than their previous working space. The employee might feel uncared for and lash out by engaging in fraud. On the side of listening, it is important to keep your ears tuned to what is happening in their lives and how satisfied they are with their jobs. Complaining about work situations or personal perils can signify that fraud might come in the future. Therefore, hiring honest employees, building trust, and having a positive and productive work environment that encourages everyone to be valued is a safe way to prevent fraud.

Creating internal controls by identifying plans, programs, documentation, and the distribution of duties within a company can deter financial fraud. These plans aid in safeguarding a company's assets by ensuring efficiency in a firm's operations and helping maintain the integrity of its records. These elements aim to notice any discrepancies in records and collections. It is also useful to constantly monitor and adapt these actions mentioned above to ensure that a company is on the right track when countering fraud.

Again, bringing awareness to fraud-risk policies helps companies escape fraud. It is key that employees and management staff understand the policies to detect fraud and what will be done if it is found. People in any organisation value transparency and full disclosure of what the company intends to do about these issues. However, it is not just about ruling out chances of fraud but also about building a company culture of openness.

Keeping track or monitoring investments with unusually high returns also helps those charged with governance escape financial fraud. If an investment shows a high return even during major market downturns, ask an expert to review the investments and request corresponding financial statements of the companies in which the investments are held. This can be done by reconciling cash and bank accounts regularly. According to ISAs, this is an effective way to identify unusual transactions and balances, as cash transactions increase the possibility of fraud and theft against digital transactions. Hence moving towards electronic payments can go a long way in reducing the incidence of financial misappropriation.

Finally, it is advised that those charged with corporate governance should lead by example. It is important to create a corporate culture that is healthy, positive, and honest. This reduces the possibility of employees being vengeful or frustrated at work, which can lead to fraudulent behaviour. In addition, higher management should be fair in giving out punishments, even if it concerns executives, and should have an open-door policy of communication with supervisors and junior staff.

In a nutshell, fraud is getting worse globally and locally, affecting companies including small and medium Enterprises (SMEs). There are many bodies committed to putting an end to it by implementing certain actions which should be taken to counteract financial cheating. Therefore, all companies and individuals are responsible for being aware and watchful in protecting their financial information from potential fraudsters and understanding how financial fraud can affect them. Hence, all are advised to put stringent measures such as having efficient systems and adhering to the set policies and procedures in place so they do not fall a victim.

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