Fraud on the rise as conditions tighten
Directors and employees are resorting to fraud to keep their companies and personal finances afloat as the economic crisis worsens.
In recent months, chartered accountant PKF has noticed a rising number of cases of financial fraud in companies facing insolvency.
PKF Corporate Recovery partner Ken Whittingham said the number of businesses failing was rising due to the worsening economic environment.
“An alarming number of these business failures revealed some form of fraudulent activity,” he said.
“We have seen a huge increase in fraudulent behaviour, much of which had gone undetected until these companies’ books came under scrutiny.”
Typical instances of fraud include fake invoices, directors cashing unauthorised cheques and companies building up large loan accounts in the knowledge that they could not be repaid.
“One recent case involved a company director receiving financing from two different institutions for a piece of plant equipment,” Whittingham said.
Property is also being used as a way of raising cash for companies in trouble.
Valuations made earlier this year when the property market was more buoyant are being used to obtain a loan, rather than using a current valuation, which is less.
The difference is being used for fraudulent purposes.
Whittingham said unlisted companies were more prone to fraudulent activity because the levels of compliance were lower.
He said it was important advisers ensured these businesses get their houses in order before a fraud was committed.
This includes tightening up internal financial controls, including cash management, and segregate duties among staff, such as giving the job of handling cash in and bill payment to two different people.
“Having strong controls in place will make it a lot harder for someone to tamper with the books or engage in some form of illegal behaviour,” Whittingham said.
“Be alert and vigilant. If something seems unusual then it is worth investigating immediately.”
Recommended for you
As advisers risk losing two-thirds of FUA during the $3.5 trillion wealth transfer, two co-founders underscore why fostering trust with the next generation is vital to retaining intergenerational wealth.
As advisers seek greater insights into FSCP determinations, what are the various options considered by the panel and can a decision be appealed?
Amid the current financial adviser shortage, advice firm Link Wealth is looking to expand its financial literacy program for high school students across the country.
TAL Risk Academy has updated its range of ethics courses to help financial advisers meet their CPD requirements following adviser feedback, including interpreting FSCP determinations.
